Weekend Economists' SOTU = Groundhog Day! January 29-31, 2010

[Demeter]

Yes, it's that time of the year, when we sit down and try to figure out where our country's been (out to lunch) and where it's going (crazy). And then we rate our President on his ability to see what is obvious to even the casual observer:

We are living in the movie Groundhog Day, and it's going to repeat over and over and over and over

until somebody gets a clue and MAKES CHANGE WE CAN WORK WITH!

If you have been living in an even deeper cave than I these past several decades, and don't know the plot of Groundhog Day, I urge you to go out and find a copy and watch it. It starts a little slow, but the build-up is inexorable, and the denouement is well worth the ride. I won't spoil the plot if I can help it, as we review the events of the week in the context of the film....

but this is a big part of the whole schtick!

http://www.youtube.com/watch?v=xzW_7ANnHZI

[Demeter]

1. We hit the Jackpot Today--Four Banks Go Under and It's Only 7 PM

Community Bank and Trust, Cornelia, Georgia, was closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with SCBT, N.A., Orangeburg, South Carolina, to assume all of the deposits of Community Bank and Trust.

The 36 branches of Community Bank and Trust...As of September 30, 2009, had approximately $1.21 billion in total assets and $1.11 billion in total deposits. SCBT, N.A. did not pay the FDIC a premium to assume all of the deposits of Community Bank and Trust. In addition to assuming all of the deposits, SCBT, N.A. agreed to purchase essentially all of the failed bank's assets.

The FDIC and SCBT, N.A. entered into a loss-share transaction on $827.7 million of Community Bank and Trust's assets. SCBT, N.A. will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $354.5 million. SCBT, N.A's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Community Bank and Trust is the 13th FDIC-insured institution to fail in the nation this year, and the second in Georgia. The last FDIC-insured institution closed in the state was First National Bank of Georgia, Carrollton, earlier today.

Marshall Bank, National Association, Hallock, Minnesota, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with United Valley Bank, Cavalier, North Dakota, to assume all of the deposits of Marshall Bank, N.A.

The three branches of Marshall Bank...As of September 30, 2009, had approximately $59.9 million in total assets and $54.7 million in total deposits. United Valley Bank will pay the FDIC a premium of 7.35 percent to assume all of the deposits of Marshall Bank, N.A. In addition to assuming all of the deposits, United Valley Bank agreed to purchase essentially all of the failed bank's assets.

The FDIC and United Valley Bank entered into a loss-share transaction on $23.9 million of Marshall Bank, N.A.'s assets. United Valley Bank will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $4.1 million. United Valley Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Marshall Bank, National Association is the 12th FDIC-insured institution to fail in the nation this year, and the second in Minnesota. The last FDIC-insured institution closed in the state was St. Stephen State Bank, St. Stephen, on January 15, 2010.

Florida Community Bank, Immokalee, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Premier American Bank, National Association, Miami, Florida, to assume all of the deposits of Florida Community Bank.

The 11 branches of Florida Community Bank...As of September 30, 2009, had approximately $875.5 million in total assets and $795.5 million in total deposits. Premier American Bank, N.A. will pay the FDIC a premium of 0.4 percent to assume all of the deposits of Florida Community Bank. In addition to assuming all of the deposits of the failed bank, Premier American Bank, N.A. agreed to purchase approximately $499.1 million of the failed bank’s assets. The FDIC will retain the remaining assets for later disposition.

The FDIC and Premier American Bank, N.A. entered into a loss-share transaction on $305.4 million of Florida Community Bank's assets. Premier American Bank, N.A. will share in the losses on the asset pools covered under the loss-share agreement....As part of this transaction, the FDIC will acquire an equity appreciation instrument. This instrument serves as additional consideration for the transaction.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be$352.6 million. Premier American Bank, N.A.'s acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Florida Community Bank is the 11th FDIC-insured institution to fail in the nation this year, and the second in Florida. The last FDIC-insured institution closed in the state was Premier American Bank, Miami, on January 22, 2010.

First National Bank of Georgia, Carrollton, Georgia, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Community & Southern Bank, Carrollton, Georgia, a newly chartered institution, to assume all of the deposits of First National Bank of Georgia.

The 11 branches of First National Bank of Georgia...As of September 30, 2009, had approximately $832.6 million in total assets and $757.9 million in total deposits. Community & Southern Bank will pay the FDIC a premium of 1.25 percent to assume all of the deposits of First National Bank of Georgia. In addition to assuming all of the deposits of the failed bank, Community & Southern Bank agreed to purchase essentially all of the assets.

The FDIC and Community & Southern Bank entered into a loss-share transaction on $607.4 million of First National Bank of Georgia's assets. Community & Southern Bank will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $260.4 million. Community & Southern Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. First National Bank of Georgia is the tenth FDIC-insured institution to fail in the nation this year, and the first in Georgia. The last FDIC-insured institution closed in the state was Rockbridge Commercial Bank, Atlanta, on December 18, 2009.

[CatholicEdHead]

8. So two more in Georgia and one in far NW Minnesota?

I did not expect Hallock, that is as far northwest as you can go in the state. It is rural, flat, boring farm country up there, so something else other than real estate probably did them in.

[Demeter]

11. I'm just grateful the bank the condo association uses isn't listed there

I checked their rating and it's plummeting...

[DemReadingDU]

14. Add First Regional Bank, in Calif

On Friday, January 29, 2010, First Regional Bank, Los Angeles, CA was closed by the California Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.
http://www.fdic.gov/bank/individual/failed/firstregional.html

[Demeter]

16. Will Do! Wow, That Was a Big One!

First Regional Bank, Los Angeles, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with First-Citizens Bank & Trust Company, Raleigh, North Carolina, to assume all of the deposits of First Regional Bank.

The eight branches of First Regional Bank...As of September 30, 2009, had approximately $2.18 billion in total assets and $1.87 billion in total deposits. First-Citizens Bank & Trust Company did not pay the FDIC a premium to assume all of the deposits of First Regional Bank. In addition to assuming all of the deposits, First-Citizens Bank & Trust Company agreed to purchase approximately $2.17 billion of the First Regional Bank's assets. The FDIC retained the remaining assets for later disposition.

The FDIC and First-Citizens Bank & Trust Company entered into a loss-share transaction on $2 billion of First Regional Bank's assets. First-Citizens Bank & Trust Company will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $825.5 million. First-Citizens Bank & Trust Company's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. First Regional Bank is the 14th FDIC-insured institution to fail in the nation this year, and the first in California. The last FDIC-insured institution closed in the state was Imperial Capital Bank, La Jolla, on December 18, 2009.

[DemReadingDU]

33. 6th bank, American Marine Bank, Bainbridge Island, WA

On Friday, January 29, 2010, American Marine Bank, Bainbridge Island, WA was closed by the Washington Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.

http://www.fdic.gov/bank/individual/failed/americanmarine.html

[Demeter]

34. Good Grief! No Rest for the Wicked

American Marine Bank, Bainbridge Island, Washington, was closed today by the Washington Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Columbia State Bank, Tacoma, Washington, to assume all of the deposits of American Marine Bank.

The 11 branches of American Marine Bank...As of September 30, 2009, had approximately $373.2 million in total assets and $308.5 million in total deposits. Columbia State Bank will pay the FDIC a premium of 1.0 percent to assume all of the deposits of American Marine Bank. In addition to assuming all of the deposits of the failed bank, Columbia State Bank agreed to purchase essentially all of the assets.

The FDIC and Columbia State Bank entered into a loss-share transaction on $255.1 million of American Marine Bank's assets. Columbia State Bank will share in the losses on the asset pools covered under the loss-share agreement... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $58.9 million. Columbia State Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. American Marine Bank is the 15th FDIC-insured institution to fail in the nation this year, and the third in Washington. The last FDIC-insured institution closed in the state was Evergreen Bank, Seattle, on January 22, 2010.

[burf]

39. It was commercial real estate

that got 'em.

From the Star Tribune: Federal regulators shut down Marshall Bank of Hallock late Friday and sold all of its assets and deposits to a larger bank in North Dakota.

Marshall, which has $60 million in assets and branches in Hallock, Lancaster and Kennedy, Minn., was buried by syndicated commercial real estate loans made by its South Dakota affiliate. It is the the ninth bank in this state to be shuttered since the economic crisis began more than two years ago.

Link: http://www.startribune.com/business/83077147.html?page=1&c=y

Good weekend to all!

[Demeter]

17. That Makes a Total Estimated Loss of $1.7971 Billion for the Evening

http://versusplus.com/depressing.html

That's just depressing!

[Demeter]

18. Haitians tire of waiting, start own rebuilding

http://news.yahoo.com/s/ap/20100130/ap_on_re_la_am_ca/cb_haiti_earthquake

Defying pleas to wait for Haiti's reconstruction, families lugged heavy bundles of wood and tin up steep hillsides Friday to do the unthinkable: build new homes on top of old ones devastated in the earthquake.

The defiance reflects growing anger and frustration among Haitians who complain that their leaders — and any rebuilding plans — are absent more than two weeks after the Jan. 12 earthquake damaged or destroyed thousands of homes in the capital.

Few tents have been supplied, rubble remains strewn in many streets, and signs begging for help in English — not Haitian Creole — dot nearly every street corner in Port-au-Prince.

It could take another month to get the 200,000 tents needed for Haiti's homeless, said Marie-Laurence Jocelyn Lassegue, the culture and communications minister. Haiti now has fewer than 5,000 donated tents.

In the concrete slum of Canape Vert, an area devastated by the quake, dozens of people were pooling their labor and getting on with rebuilding.

"I have 44 years' worth of memories in this house," said Noel Marie Jose, 44, whose family was reinforcing crumbling walls with tin and wood.

"I got married here. I met my husband here. My mother braided my hair there where these walls used to stand," Jose said. "Even if it's unsafe, I can't imagine leaving. Even if the government helps, it will come too late. This is how it is in Haiti."

Surrounding her, concrete homes were either crushed or had toppled down a hill. Jose and other families said they were worried both about the coming rainy season and fears they may lose their plots after demolitions because they either lack clear title or the government does not want them to rebuild on land it considers unsafe.

Reconstruction, resettlement and land titles are all priorities of the government of President Rene Preval — but so far in name only. The government has been nearly paralyzed by the quake — its own infrastructure, including the National Palace, was destroyed — and so far it has been limited to appeals for foreign aid and meetings with foreign donors that have yet to produce detailed plans for the emergencies it confronts.

Its first priority is moving people from areas prone to more earthquakes and landslides into tent cities that have sanitation and security but have yet to be built. Preval has engaged in dozens of meetings with potential outside contractors to discuss debris removal, sanitation and other long-term needs. Albert Ramdin, assistant secretary of the Organization of American States, has offered help in creating a new Haitian land registry — a process that could take months if not years because countless government records were destroyed in the quake.

Haitians ardently defend their property rights. If a family has occupied land for more than 10 years, they gain ownership rights even without a deed. For some families, small homes have been passed on through the generations. Few Haitians have insurance, and the loss of what few assets they have has crippled countless families.

Many have tired of living in tents improvised from tarps, sheets and bedspreads, opting to rebuild their homes rather than find new plots.

Lassegue said such rebuilding wouldn't be tolerated — and that the government wants to develop and implement a comprehensive reconstruction plan that might feature building codes, an anomaly in this impoverished nation.

"We've been sleeping outside but the rains will come soon," said Merilus Lovis, 27, taking wooden planks and erecting them for walls inside the foundation of his former home, where his wife and daughter died. "I'm scared of the floods on this hillside but I don't think that God would let such bad things happen twice."

Paul Louis, a 45-year-old porter, has started a business buying wood from scavengers and selling it on the street. He purchased a cracked and worn 1-by-8-foot board for about $2 and was selling it Friday for $3.

"People are afraid to build with concrete now," Louis said.

In another neighborhood, people dug through destroyed homes to salvage materials. Women did the wash amid the ruins.

"I have stayed, but I lost my home," said Thomas Brutus, who lives perched precariously on a debris-strewn hillside in a shack made from the remains of destroyed homes. "So I made this little house, even though I know it's dangerous. We have been here for 14 days and have received no help."

Many residents say they're staying because they grow vegetables on their small plots. Thousands of others have swarmed to improvised tent camps, where Elisabeth Byrs, an official of the U.N.'s humanitarian coordination office, said there is a "major concern" about sanitation...MORE AT LINK

[Demeter]

36. Correction: Total Now At $1.856 BILLION

I feel faint. Gonna lie down pretty soon.

[Demeter]

2. Many Opinions About the SOTU and the President's Address to Congress Will Be Listed Here

Some are funny, some are dead serious, some are both.

[Demeter]

3. Max Keiser's Report

http://www.youtube.com/watch?v=NpVgkRuq2mc

If you can overlook the autistic mannerisms, dreadful accent and wonky humor, Max hits a few pointy heads quite firmly.

[Demeter]

4. Mark Fiore's Animated Version: The State of the Union We'd Like to See

http://www.markfiore.com/political-cartoons/watch-obama-state-of-the-union-by-mark-fiore

[Demeter]

5. Oliphant Chimes In

http://imgsrv.gocomics.com/dim/?fh=b2c6558b075a84f494e6abc7f567a1b0&w=750.0

[Demeter]

6. The American Prospect Offers Several Viewpoints

http://www.prospect.org/cs/articles?article=where_was_the_narrative

Where Was the Narrative? Paul Waldman

There's no law requiring that State of the Union addresses be dull, overlong lists of provisions and proposals, but it has certainly come to seem that way.

...That doesn't mean that a State of the Union can't have an emotional core and a fully developed thematic structure. It's just that it almost never does.

Obama's address had weaknesses, to be sure (more about them in a moment). But it also did almost all of what he and his advisers wanted it to. He offered a spirited defense of the stimulus package passed last year. He also reminded viewers of how deep the economic problems were when he took office -- something that's easy to characterize as backward-looking but is nonetheless important to establishing a complete economic narrative that moves from the past (crisis) through the present (challenges being addressed) and into the future (triumph). Republicans might remember that Reagan did exactly the same thing in his 1982 State of the Union ("Our current problems are not the product of the recovery program that's only just now getting under way, as some would have you believe; they are the inheritance of decades of tax and tax, and spend and spend"). Perhaps most important, Obama projected understanding, confidence, and resolve.

Nevertheless, while Obama got the mood right, the speech lacked a single narrative thread. A great State of the Union would be organized around a theme that explains who the president is, who his opponents are, and how the arguments between them ought to be understood. There was one section in the speech that inched toward this kind of encompassing idea, when Obama took on the notion that he is doing too much or doing it too fast:

From the day I took office, I have been told that addressing our larger challenges is too ambitious -- that such efforts would be too contentious, that our political system is too gridlocked, and that we should just put things on hold for awhile.

For those who make these claims, I have one simple question: How long should we wait? How long should America put its future on hold?

You see, Washington has been telling us to wait for decades, even as the problems have grown worse. Meanwhile, China's not waiting to revamp its economy. Germany's not waiting. India's not waiting. These nations aren't standing still. These nations aren't playing for second place. They're putting more emphasis on math and science. They're rebuilding their infrastructure. They are making serious investments in clean energy because they want those jobs.

Well I do not accept second place for the United States of America. As hard as it may be, as uncomfortable and contentious as the debates may become, it's time to get serious about fixing the problems that are hampering our growth.

This section defines his opponents as timid, passive, and even lacking in faith in America's ability to triumph, while he is courageously forging ahead for the country's sake. But it came late.

If there was a reason to be disappointed in the speech, it was the same reason progressives have again and again been disappointed with Obama, even when they were most excited about him. He has a terrible aversion to drawing clear ideological lines of distinction and to calling out his opponents by name for their misdeeds. When he talks about all the benefits of the stimulus but doesn't mention that every single Republican in the House and all but three (one of whom became a Democrat) in the Senate voted against it, or when he characterizes gridlock as the fault of "Washington" and not the fault of Republicans, progressives aren't frustrated just because they want some red meat to gnaw on. Those ideological distinctions have a practical importance. They explain for the public what the parties' differences are and direct blame where it ought to go. They establish markers that can be repeated and reinforced, making your future efforts at persuasion far simpler.

But as always, Obama passed up one opportunity after another to define his opponents as the problem....

The Return of Childish Things Mark Schmitt

The smallness of Washington and the natural nervousness of the electorate proved too much for Obama's original vision. But there's still hope.

...The main argument within the center-left coalition in American politics, for at least 20 years (coinciding with the life of this magazine), has been between Big and Small. It's not liberal versus moderate, or the people versus the powerful. Rather, it's between a progressivism of big gestures, emphatic programs, and ballsy claims to power, on the one hand, and on the other, small, tactical, non-scary transactional bargains that nudge the country, or some subset of us, in a better direction.

Somehow, most of the time, small wins. And last night, although the State of the Union Address was strong in many respects in tone and substance, Barack Obama signed a nonaggression pact with small...

http://www.prospect.org/cs/articles?article=the_return_of_childish_things

[Joe Chi Minh]

87. Obama's Q&A rout of the Republicans was a first-rate demonstration of

the strength that having truth on your side provides (his mastery of his brief, made it immeasurably more impressive, of course).

And yet, generally, in his demeanour towards his Republican opponents, who, themselves, are not shy about expressing their hostility towards their Democratic rivals, any rivals, Obama seems to think that truth is negotiable if the enemy is big enough and ugly enough. Well, of course, to some extent that is politics, but it didn't stop Truman saying, “I never give them hell. I just tell the truth and they think it's hell.”

Also, it's a very different world, and a very different polity on Capitol Hill, but the reality is that, while their puppeteers would hate him for it, his Republican political opponent would genuinely respect him more, if he 'caned' them more often. As Churchill said of the Nazis (he was not a million miles from the far-right in Britain most of his life, so understood imperialism, cherishing Britain's own piracy and plunder): 'They are either at your feet or at your throat.' But that's the disturbing thing, The polarity of left and right predicates adversarial politics; it's not inquisitorial.

[Demeter]

7. And Now, A Word From the Economy, Herself!

http://versusplus.com/aword.html

[DemReadingDU]

20. That's a good one!

I'm thinking we heard some of their songs last month(?), holiday melodies. And on the right side of the page are lots more 'economy' tunes.

[Demeter]

23. I'm Getting There

Hold your horses!

[fasttense]

80. Wow, that was great.

Janis Liebhart has a great voice and the content was fabulous.

[Demeter]

22. The Annotated Obama (Joe Bageant)

http://worldnewstrust.com/index.php?option=com_flexicontent&view=items&cid=134:commentary-wnt-reports&id=7505:the-annotated-obama-joe-bageant

YOU'LL LAUGH, YOU'LL CRY, AS JOE BAGEANT SPINS HIS TRUSTY DECODER RING AND TELLS US WHAT THE REAL STATE OF THE UNION SPEECH WAS.

[bread_and_roses]

29. "The National Hand Job" - ROFL (n/t)

[MattSh]

46. Boy, he's got that right...

I wonder how many people who sat in awe to Obama's SOTU sat down later and tried to understand exactly what was said. You know, the ink on paper version, the millions of black pixels on a white background version. You know, READING. Off in this part of the world, there is no live SOTU, so my first and only contact with it so far has been the printed version, which has led me to ponder…

"Where's the beef"

"WTF"

"There's no there, there"

(Insert your favorite cliche here)

Frankly, I found it massively underwhelming when read in black on white. Sort of like Joe's version, only not as well articulated.

Crap people, get beyond the grand speechifying and political gamesmanship and read. And think. And understand. And come to your own conclusion. Politicians hate that.

Sadly, it seems that after a week on the reality bus, (the one that carried Scott Brown to DC), people are bored again. Life really is more interesting when you're on the bus with the cheerleaders. Where it's easier to believe that the grand "National Hand Job" might fall into your lap.

.

[Tansy_Gold]

79. You're absolutely correct,

and of course it's what some/many of us have been saying.

Words are, well, they're words. We need deeds, we need action.

It's like the old story we read back in grade school, "Equal Pay for Equal Work." Two brothers agree to build a palace for the King. One does all the work, one does all the encouraging. When it comes time to get paid, the King heaps praised on the second brother, telling him what a wonderful job he did. But the King gives the first brother the gold.



Tansy Gold, pun intended

[Demeter]

41. State of the (Cardboard) Box

http://outsidethe-cardboard-box.tumblr.com/post/357393472/state-of-the-cardboard-box

Friends,

The Anti Depressant Movement is alive and thriving here at the Outside the (Cardboard) Box Global Headquarters Shed. As we embark together on the journey to retake our Country from rapacious Commercial Interests, to pry loose from their purchased offices a National Legislature that no longer represents the People, and mightily endeavor to acquire indoor plumbing here at OTCB , it behooves us to pause and reflect upon the challenges that confront us.

*

The road ahead will not be an easy one. There will be days of hardship. There will be days of sorrow. However, there will also be days of mirth, laughter and joy. And in the end, there will be victory. For no longer is it merely the Anti Depressants who seek the return of our Nation. No my friends, we are now joined by others who loudly proclaim their like-mindedness!

*

During his State of the Union Address to Congress tonight, President Barack Obama informed us that he absolutely hated the bank bailouts. He knows that I hated them. He knows that you hated them. He knows of a couple people in Washington who hated them. He knows a guy in Indy that didn’t like them too much. And there was a lady he met somewhere…..she wasn’t too thrilled either.*

The President declared that he demands a financial system that will not destroy the Economy. As do we, Mr. President. As do we. Bravo sir!

In order to create a financial system that won’t destroy the Economy, the President proposes giving money to, um, banks. Not those banks. He wants to give money to other banks. He wasn’t real explicit which banks though. But he has $30 billion in repaid TARP Funds burning a hole in his pocket and apparently the President thinks that this is the way to go.

*

Friends, the President is also closely aligned with Anti Depressant thinking regarding the elimination of undue legislative influence by Special Interests.

The President’s proposed strategy in this regard is to provide vast sums of money to companies who build nuclear power plants, solar cells, railroads and companies like the one that makes that yellow, gooey expanding foam you spray from a can.

He will also give Big Oil Companies access to previously inaccessible national reserves.

This is a brilliant strategy, Mr. President. That will teach those banks, not the, um, other banks that you want to give money to now, but, you know, the bad banks from before, not to f*ck with us!

*

The President is clearly getting us back on the right track. Already able to point at several thousand jobs created through his dynamic initiatives, President Obama will no doubt have the other 16 million unemployed or underemployed back in harness in no time.

One of the President’s initiatives seemingly overlooked by the partisan right wing mainstream media is the Permanent Census Corps. While it is expected that most of those jobs will go to undocumented Haitians here recently granted temporary protected status , there will certainly be at least a few dozen positions open nationwide after all of the Haitians are settled.

A primary objective of the Permanent Census Corps will be to identify other undocumented resident aliens who may be fearful of deportation. It is believed that the largely Haitian immigrant PCC will be much more effective in identifying this underserved segment of our population, thus enabling them to also be granted temporary protected status permanently.

Apparently this diversity will enrich our society, broaden our culture and grow our economy through the, um, further expansion of our Government and its entitlement system.

*

Friends, it’s not just the Democratic President standing shoulder-to-shoulder with the Anti Depressants. The Republican National Committee is also aligned with our Movement.

Speaking from a tropical resort in Hawaii where Party Leaders are holding their annual meeting, RNC Chairman Michael Steele said after listening to the President’s Address, “The partisan left-wing mainstream media has made a big deal out of our selection of Hawaii. We were going to hold this year’s meeting in Detroit but it was pointed out that we haven’t held this meeting in Hawaii in at least a year. That’s all there is to that. We might do Detroit next year. And Hawaii is in a recession too. We just wanted to help”

Frankly, we here at Outside The (Cardboard) Box are touched by such sentimentality. That willingness to pitch-in is one of the qualities that made America great!

*

So with Democrats and Republicans suddenly embracing Anti Depressant Principals, I am sufficiently relieved to take a moment from my State of the (Cardboard) Box address to recognize First Lady Michelle Obama’s new “Fat Kids Initiative” as mentioned tonight by the President.

Fat kids are a National disgrace. You see them everywhere. Unsightly, beastly little things with chafing thighs and food-stained clothing, it’s high time that something was done. Talk about your big and difficult challenge. So to the First Lady we offer the thanks of a grateful Nation.

*

And so, to my fellow Anti Depressants, I say our time to engage is now! Don’t quit. I won’t quit. Don’t you quit. We won’t quit. No quitting. Don’t let your fat kids quit either. So absolutely no quitting. I’m serious about the quitting thing. Any questions on quitting? I didn’t think so. Because we’re not quitting. Winners never quit. And you can’t win if you quit. So my friends, let us seize this moment with unity of purpose and the strength of our resolve to retake our Nation and restore it to its proper path!

I wish you all goodnight and may God Bless our Cardboard Box.

- TomOfTheNorth

[Hugin]

9. Well, I took the recces back to zero and then some kind soul put it back positive.

Anyhow... Since, I was outvoted in the choice for this weeks topics, I'll be back with a couple of quotes... Anyhow.

[Demeter]

13. You Aren't Outvoted! Please do put in your quotes

We're having a potlatch.

[bread_and_roses]

30. the rosy glasses busy, are they? I hit the R - hardly ever think of it

but I'll make a point from now on.

[Demeter]

10. Economic Recovery Period: When the Stock Market Notices the Depression By Bill Bonner

http://dailyreckoning.com/economic-recovery-period-when-the-stock-market-notices-the-depression/

Our beat is money. And we won't make any money hanging around the Café des Dames watching people come and go. So let's turn to the financial world...

Yesterday, the Dow was down 150 points the last time we checked it. And this morning, Asian stocks are falling again. China's stock market has fallen below its 200-day moving average - a bad sign.

Is this a little correction in the long upward climb of stock prices? Is it a pause in humanity's march to perfection? Or is it a resumption of the bear market that began 2 years ago?

The way we see it, things go up and down...round and round...back and forth. Human life may become more comfortable, with technical progress and innovation. But every life still ends in the same place it did a million years ago. Ashes to ashes...dust to dust...

And what about the life of a company? Or a stock? Or a bull market? You know the answer. They end up where they began, nowhere. Everything ends up in the same place...back where it started. The challenge, as near as we can tell, is to get there with grace and dignity.

Speaking of stocks, the Dow hit a low of 6,547 on March 9th of last year. Most observers believe that was THE low...the nadir of the bear market movement. We doubt it. Even at its low, investors were still fairly confident that stocks would perform well 'over the long run.' They saw the problem as a banking crisis...a liquidity crisis, not a fundamental failure of the economy.

And even at 6,547 the Dow had lost only about half of its value...leaving P/E ratios well above typical major bottoms. At major bottoms, you can buy almost any stock on the exchange for 5-8 times earnings. If you were buying the whole company, you'd get a yield on your investment of 15% to 20%. Nice deal.

But in March of last year, when the bear market found its first resistance, corporate earnings were falling too...leaving investors with P/E ratios closer to 20 than to 5.

The bounce lasted more than 9 months and recovered about half of what stocks had lost. If the bulls are right, stocks could correct here...and then go back to their bullish trend. If we're right, on the other hand, they will fall all the way back to their March 9 low...and keep going, until they finally arrive at their ultimate low. Then, you'll be able to buy major listed companies and get a decent return on your money - from the dividends.

If we're right, the economy is in a multi-year period of correction, de-leveraging and depression. The stock market has to notice, sooner or later. And it is bound to get a little gloomy when it realizes what is going on. That should take the Dow down to about 3,000-5,000 on the Dow index. It could be much lower...

The latest figures - keeping in mind that we don't believe any statistics unless we fiddled them ourselves - show new jobless claims down last week, but not as much as expected. Bloomberg quotes a 'senior economist' who tells us that the numbers are going in the right direction, but 'very slowly.' The four-week average number, meanwhile, is going in the wrong direction - it shows increased unemployment.

And what about the housing market?

It's hard to get a clear picture of what is going on. According to Case/Shiller prices are rising in many areas. But so are inventories. It now takes a record 13.9 months to sell a new house - up 50% from a year ago. This must discourage a lot of sellers. Those who can afford it may prefer to hold houses off the markets - waiting for a better season.

The housing market is probably like the stock market, in other words. Just a little slower. The first wave down was driven by defaults, foreclosures and marginal, desperate sellers. The next wave down will be driven by inventories...population trends...and the depression. Many owners still believe prices will come back, when the 'recovery' really gets underway. Most likely, they will be disappointed.

If there is any recovery at all...it will be weak, lame and tentative. People wanting to buy houses will look for bargains. Owners will take advantage of every positive move to release more inventory - depressing prices for many years ahead.

What would change things? Well, there is little hope that the crisis will go away. Mistakes gotta be corrected. Leverage gotta go. Depressions gotta do their stuff.

But the nature of the depression could shift suddenly - from deflation to hyperinflation. We don't expect it. But it could happen. And if it did happen, people might rush to get rid of paper dollars as fast as possible. You'd see a big boost in prices for just about everything - including stocks and real estate.

Even in this case, however, the increases may be less than the losses on the paper money itself. Very hard to predict. In hyperinflation all bets are off.

Do we expect hyperinflation in the US anytime soon? No. We expect years of Japan-like suffering. But we could be surprised...

[Demeter]

12. State of the Union: A Day Late, and a Buck Short By Addison Wiggin

http://dailyreckoning.com/state-of-the-union-a-day-late-and-a-buck-short/

On the eve of Obama’s election to the presidency, while pondering how long the recession would last, we wrote:

“The data point to watch will be unemployment. The real danger economically, socially or politically speaking, in the ’30s was loads of young men without jobs.

“Unemployment leapt up to 25% in a very short amount of time between the stock market bust in 1929 and 1934…the end of the official recession.”

Today, we follow up the now president’s State of the Union address with puzzlement: Why all the emphasis on jobs now? Why not a year ago, when we were shedding more than half a million jobs a month?

The not-so-stunning answer: The White House and Congress thought they already had unemployment licked.

We went back and looked at the proposed budget for fiscal 2010 the president submitted to Congress a year ago. We were floored by one of its built-in assumptions – an unemployment rate peaking at 8.1% in 2009 and falling to 7.2% in 2010.

Actual result: A peak of 10.2% in 2009, sitting at 10.0% right now. Just a wee bit off the mark. Much higher if you dig into the stats at all, a la John Williams.

The Congressional Budget Office ran its own numbers at the same time. Its forecast performed better, but “better” in this case is a relative term. CBO figured on a peak of 9.0% occurring in 2010.

A forecasting track record like that in our line of work means you lose readers, and, if you lose enough of them, your job. In Washington, you get to go Congress!

Of course, neither Congress nor the president can do anything about the jobs picture – except make it worse. Hence, in our opinion, the blown forecast. (Oy. The law of unintended consequences is the sneakiest of the lot!)

[Demeter]

15. In Other Words: Bearish

http://versusplus.com/bearish.html

[Po_d Mainiac]

19. Groundhog Day..major winter milestone

The old adage is your woodshed should be either half empty, or half full.

Since we go through quite a bit wood boiling off maple syrup, ours needs to be at the 75% level...Which it is....
Life is good.

[Demeter]

24. Is Your Sugar Shack just for the family, or do you sell?

[DemReadingDU]

21. Bloomberg: Secret Banking Cabal Emerges From AIG Shadows

1/29/10 Secret Banking Cabal Emerges From AIG Shadows: David Reilly

The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.

Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system -- apart from the matter of AIG’s bailout -- deserves further congressional scrutiny.

The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others. That decision, critics say, amounted to a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been allowed to fail.

That move came a few weeks after the Federal Reserve and Treasury Department propped up AIG in the wake of Lehman Brothers Holdings Inc.’s own mid-September bankruptcy filing.
.
.
That the New York Fed, a quasi-governmental body, was able to push around the SEC, an executive-branch agency, deserves a congressional hearing all by itself.

Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: “I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals -- too many counterparties, too many lawyers and advisors, too many people from AIG -- to keep a determined Congress from the information.”

Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark.

This belies the culture of secrecy obviously pervasive within the New York Fed. Committee Chairman Edolphus Towns noted during the hearing that the bank initially refused to disclose even the names of other banks that benefited from its actions, arguing this information would somehow harm AIG.

more...
http://www.bloomberg.com/apps/news?pid=20601039&sid=aaIuE.W8RAuU


and on Bloomberg too

[Robbien]

45. What the hell, Bloomberg?

This is a great article and it is no surprise it is released late on a Friday afternoon. Surprising this is Bloomberg saying 'TBTB those crazy conspiracy theorists keep going on about are real and are over here, SEE'.

[DemReadingDU]

25. Phoenix PD, FD to lay off hundreds amid budget crisis

1/29/10 Phoenix PD, FD to lay off hundreds amid budget crisis

As Phoenix struggles with an unprecedented budget crisis, officials say police officers and firefighters will be laid off for the first time in city history.

The announcement came Thursday afternoon as the Phoenix city manager informed city departments how much funding they would lose this year.

The police and fire chiefs detailed the massive cuts their departments will take: $54 million for police and $35 million for fire.

Both departments have faced budget reductions throughout the economic downturn. Now officials said there is no where else to cut but let staff go.

Nothing will be finalized for at least two weeks.

But early estimates are that 350 sworn police officers will be fired and 144 firefighters let go.

It's the first time in city history that layoffs have affected sworn positions.

Phoenix had asked all city departments to reduce their budgets by at least 15 percent.

And at the Phoenix police union, the phone's been ringing off the hook from worried cops.

"You've heard the phrase the thin blue line. It can't get any thinner, it's going to snap," said Mark Spencer, Phoenix Law Enforcement Association resident.

The union represents 2,500 officers.

And Spencer said he's not sure what else can be done or removed before budget cuts entirely sever the city's public safety.

"You've seen that slogan on the side of police cars 'To Serve and Protect,' well these budget cuts are going to morph that from 'Serve and Protect' to 'Wait and See,'" said Spencer.

http://www.abc15.com/content/news/phoenixmetro/central/story/Phoenix-PD-FD-to-lay-off-hundreds-amid-budget/WKOJX5cCw0uaDMMMzBf0WA.cspx


wow, that's a lot. and not good as more and more jobless people get irritable

[Demeter]

26. Quotes for Groundhog Day

The groundhog is like most other prophets; it delivers its prediction and then disappears. ~Bill Vaughn


To shorten winter, borrow some money due in spring. ~W.J. Vogel

Every mile is two in winter. ~George Herbert


The trouble with weather forecasting is that it's right too often for us to ignore it and wrong too often for us to rely on it. ~Patrick Young


To be interested in the changing seasons is a happier state of mind than to be hopelessly in love with spring. ~George Santayana


Don't knock the weather; nine-tenths of the people couldn't start a conversation if it didn't change once in a while. ~Kin Hubbard


Turn your face to the sun and the shadows fall behind you. ~Maori Proverb


Winter is nature's way of saying, "Up yours." ~Robert Byrne

[Po_d Mainiac]

51. I toss in my own

It's tough to get enamored with spring (AKA "mud season"), unless you're a black fly.

[Demeter]

27. Trailer for the Movie (1993)

http://www.youtube.com/watch?v=T_yDWQsrajA

[Demeter]

28. Apparently Some Poor Soul Uploaded the Whole Thing

http://www.youtube.com/watch?v=0MoOvPIuKAY&NR=1

and nine more segments.

[Demeter]

31. Foreclosures new hot spots

http://money.cnn.com/galleries/2010/real_estate/1001/gallery.New_foreclosure_hot_spots/index.html

The new foreclosure plague is tied more to the economy than bad mortgages. Here are 10 cities where defaults grew the fastest in 2009.

Boise, Idaho

Foreclosure rate: One in every 21 homes
Percent increase from 2008: 103%
National rank: 24th
Unemployment rate: 10.1%

Provo, Utah

Foreclosure rate: One in 24 homes
Percent increase: 101%
National rank: 30th
Unemployment rate: 5.5%

Portland, Oregon

Foreclosure rate: One in every 44 households
Percent increase: 87%
National rank: 61st
Unemployment rate: 10.8%

Greenbay, Wisconsin

Foreclosure rate: One in every 56 homes
Percent increase: 127%
National rank: 77th
Unemployment rate: 7.3%

Birmingham, Alabama

Foreclosure rate: One in 61 homes
Percent increase: 267%
National rank: 85th
Unemployment rate: 9.5%

Myrtle Beach, SC

Foreclosure rate: One in every 62 homes
Percent increase: 280%
National rank: 89th
Unemployment rate: 13.3%

Honolulu, Hawaii

Foreclosure rate: One in every 84 households
Percent increase: 142%
National rank: 128th
Unemployment rate: 5.9%

Roanoke, Virginia

Foreclosure rate: One in every 103 homes
Percent increase: 353%
National rank: 145th
Unemployment rate: 7.1%

Sioux Falls, South Dakota

Foreclosure rate: One in every 136 homes
Percent increase: 101%
National rank: 161st
Unemployment rate: 4.9%

Gulfport-Biloxi, Missisippi

Foreclosure rate: One in every 199
Percent increase: 784%
National rank: 180th
Unemployment rate: 7.7%

DETAILS AT LINK

[Demeter]

32. THAT ROSE, FANNIE MAE

http://versusplus.com/fanniemae.html

[DemReadingDU]

35. Trailer for Wall Street 2 is out

http://www.wallstreetmoneyneversleeps.com/

http://www.imdb.com/video/imdb/vi875627545/

1/29/10 The 10 Best Quotes From Wall Street 2: Money Never Sleeps
http://www.businessinsider.com/the-best-quotes-from-wall-street-2-money-never-sleeps-2010-1

[Demeter]

37. Secret Banking Cabal Emerges From AIG Shadows: David Reilly

http://www.informationclearinghouse.info/article24534.htm

http://www.bloomberg.com/apps/news?pid=20601039&sid=aaIuE.W8RAuU

The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.

Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system -- apart from the matter of AIG’s bailout -- deserves further congressional scrutiny.

The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others. That decision, critics say, amounted to a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been allowed to fail.

That move came a few weeks after the Federal Reserve and Treasury Department propped up AIG in the wake of Lehman Brothers Holdings Inc.’s own mid-September bankruptcy filing.

Saving the System

Treasury Secretary Timothy Geithner was head of the New York Fed at the time of the AIG moves. He maintained during Wednesday’s hearing that the New York bank had to buy the insurance contracts, known as credit default swaps, to keep AIG from failing, which would have threatened the financial system.

The hearing before the House Committee on Oversight and Government Reform also focused on what many in Congress believe was the New York Fed’s subsequent attempt to cover up buyout details and who benefited.

By pursuing this line of inquiry, the hearing revealed some of the inner workings of the New York Fed and the outsized role it plays in banking. This insight is especially valuable given that the New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve.

This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed’s bailout programs. It’s as though the New York Fed was a black-ops outfit for the nation’s central bank.

Geithner’s Bosses

The New York Fed is one of 12 Federal Reserve Banks that operate under the supervision of the Federal Reserve’s board of governors, chaired by Ben Bernanke. Member-bank presidents are appointed by nine-member boards, who themselves are appointed largely by other bankers.

As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.”

And yet the New York Fed played an integral role in the government’s bailout of banks, often receiving surprisingly free rein to act as it saw fit.

Consider AIG. Let’s take Geithner at his word that a failure to resolve the insurer’s default swaps would have led to financial Armageddon. Given the stakes, you might think Geithner would have coordinated actions with then-Treasury Secretary Henry Paulson. Yet Paulson testified that he wasn’t in the loop.

“I had no involvement at all, in the payment to the counterparties, no involvement whatsoever,” Paulson said.

Bernanke’s Denials

Fed Chairman Bernanke also wasn’t involved. In a written response to questions from Representative Darrell Issa, Bernanke said he “was not directly involved in the negotiations” with AIG’s counterparty banks.

You have to wonder then who really was in charge of our nation’s financial future if AIG posed as grave a threat as Geithner claimed.

Questions about the New York Fed’s accountability grew after Geithner on Nov. 24, 2008, was named by then-President- elect Barack Obama to be Treasury Secretary. Geither said he recused himself from the bank’s day-to-day activities, even though he never actually signed a formal letter of recusal.

That left issues related to disclosures about the deal in the hands of the bank’s lawyers and staff, rather than a top executive. Those staffers didn’t want details of the swaps purchase to become public.

New York Fed staff and outside lawyers from Davis Polk & Wardell edited AIG communications to investors and intervened with the Securities and Exchange Commission to shield details about the buyout transactions, according to a report by Issa.

That the New York Fed, a quasi-governmental body, was able to push around the SEC, an executive-branch agency, deserves a congressional hearing all by itself.

Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: “I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals -- too many counterparties, too many lawyers and advisors, too many people from AIG -- to keep a determined Congress from the information.”

Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark.

This belies the culture of secrecy obviously pervasive within the New York Fed. Committee Chairman Edolphus Towns noted during the hearing that the bank initially refused to disclose even the names of other banks that benefited from its actions, arguing this information would somehow harm AIG.

‘Penchant for Secrecy’

“In fact, when the information was finally released, under pressure from Congress, nothing happened,” Towns said. “It had absolutely no effect on AIG’s business or financial condition. But it did have an effect on the credibility of the Federal Reserve, and it called into question the Fed’s penchant for secrecy.”

Now, I’m not saying Congress should be meddling in interest-rate decisions, or micro-managing bank regulation. Nor do I think we should all don tin-foil hats and start ranting about the Trilateral Commission.

Yet when unelected and unaccountable agencies pick banking winners while trying to end-run Congress, even as taxpayers are forced to lend, spend and guarantee about $8 trillion to prop up the financial system, our collective blood should boil.

(David Reilly is a Bloomberg News columnist. The opinions expressed are his own.)

[Demeter]

38. You've Got the Fed

http://versusplus.com/fed.html

[Demeter]

48. OOOPS! Double Post!

Sorry, Groundhog Day Syndrome....

[DemReadingDU]

52. Groundhog Day Syndrome, lol

A couple years ago, our childrens museum resident groundhog died and needed to find another for the annual groundhog day ceremony. Well, one was found and named with with spouse's name. We had a fun time with that!

[Demeter]

53. WTF? Fed Demands “Special Security Procedures” for AIG Details From SEC

http://www.nakedcapitalism.com/2010/01/wtf-fed-demands-special-security-procedures-for-aig-details-from-sec.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Francios T. sent the link to the Reuters story describing the fact that the Fed demanded unusual security procedures before supplying “a critical bailout related document” and the the SEC said if it agreed with the request to keep it confidential, it would store it where national security related files are kept.

Sports fans, this request can point to only one of two conclusions. Either the folks at the Fed are suffering from a massive case of grandiosity, or something very incriminating is in that file. There is simply no bailout-related information that legitimately warrants that level of security treatment AFTER THE FACT (even in the very unlikely event AIG officials possessed information related to terrorist financial networks, which is legitimately limited to parties with high-level security clearances, I can’t imagine that it would be the sort of thing that would also be subject to disclosure in SEC filings, and hence would be subject to back and forth among the Fed, AIG, and the SEC).

And there is no reason to think this information is this deserving of such heroic efforts. Apparently, the information includes transaction level detail like CUSIPs. As we indicated in our post last Friday, most of this information is already in the public domain (from the transaction information we have located, adding the CUSIPs is pretty easy).

From Reuters:

The request to keep the details secret were made by the New York Federal Reserve — a regulator that helped orchestrate the bailout — and by the giant insurer itself, according to the emails.

The emails from early last year reveal that officials at the New York Fed were only comfortable with AIG submitting a critical bailout-related document to the U.S. Securities and Exchange Commission after getting assurances from the regulatory agency that “special security procedures” would be used to handle the document.

The SEC, according to an email sent by a New York Fed lawyer on January 13, 2009, agreed to limit the number of SEC employees who would review the document to just two and keep the document locked in a safe while the SEC considered AIG’s confidentiality request.

The SEC had also agreed that if it determined the document should not be made public, it would be stored “in a special area where national security related files are kept,” the lawyer wrote.

In another email, a New York Fed official said the SEC suggested in late December 2008, that AIG file the document under seal and then apply to the regulatory agency for so-called confidential treatment, if central bankers wanted to stop the information from becoming public….

“The New York Fed was orchestrating what can only be characterized as an extreme effort to ensure that details of the counterparty deal stayed secret,” Rep. Darrell Issa from California, the ranking Republican on the House Oversight Committee, said through a spokesman. “More and more it looks as if they would’ve kept the details of the deal secret indefinitely, it they could have.”

In March, some of the secrecy surrounding the AIG bailout began to fall away when the insurer, under pressure from Congress and the SEC, agreed to publicly name the 16 banks that got money in the rescue package and how much each received.

But AIG, largely at the prodding of the New York Fed, refused to make public all of the information in the controversial document, officially called “Schedule A — List of Derivative Transactions,” according to the emails turned over by the central bank to Capitol Hill. AIG continued to seek confidential treatment from the SEC for the redacted portions of the five-page filing.

Last May, the SEC did grant AIG’s request for confidential treatment for the remaining redacted portions of the Schedule A filing. The redacted parts include the CUSIP, or trading ID, number for each security on which AIG wrote a CDS contract, as well as the face value of each individual security that AIG had insured against default.

Yves here. What can the Fed be so desperate to hide? The relationship among the counterparties? We were surprised to see how many banks had acquired super-senior CDOs from other banks, and not just EuroBanks, where that was not unheard of (Basel II rules allowed a bank that had hedged an AAA instrument with a guarantee from an AAA counterparty as requiring no capital, so for them, buying AAA CDOs when the cost of the hedge was cheaper than the yield on the instrument, aka a “negative basis trade” looked sensible on paper, even though these trades blew up spectacularly). Or is it anxious not to have its valuations questioned? Is there some other reason readers can fathom?

[Demeter]

40. March of the Peacocks by Paul Krugman

http://www.nytimes.com/2010/01/29/opinion/29krugman.html

Last week, the Center for American Progress, a think tank with close ties to the Obama administration, published an acerbic essay about the difference between true deficit hawks and showy “deficit peacocks.” You can identify deficit peacocks, readers were told, by the way they pretend that our budget problems can be solved with gimmicks like a temporary freeze in nondefense discretionary spending.

One week later, in the State of the Union address, President Obama proposed a temporary freeze in nondefense discretionary spending.

Wait, it gets worse. To justify the freeze, Mr. Obama used language that was almost identical to widely ridiculed remarks early last year by John Boehner, the House minority leader. Boehner then: “American families are tightening their belt, but they don’t see government tightening its belt.” Obama now: “Families across the country are tightening their belts and making tough decisions. The federal government should do the same.”

What’s going on here? The answer, presumably, is that Mr. Obama’s advisers believed he could score some political points by doing the deficit-peacock strut. I think they were wrong, that he did himself more harm than good. Either way, however, the fact that anyone thought such a dumb policy idea was politically smart is bad news because it’s an indication of the extent to which we’re failing to come to grips with our economic and fiscal problems.

The nature of America’s troubles is easy to state. We’re in the aftermath of a severe financial crisis, which has led to mass job destruction. The only thing that’s keeping us from sliding into a second Great Depression is deficit spending. And right now we need more of that deficit spending because millions of American lives are being blighted by high unemployment, and the government should be doing everything it can to bring unemployment down.

In the long run, however, even the U.S. government has to pay its way. And the long-run budget outlook was dire even before the recent surge in the deficit, mainly because of inexorably rising health care costs. Looking ahead, we’re going to have to find a way to run smaller, not larger, deficits.

How can this apparent conflict between short-run needs and long-run responsibilities be resolved? Intellectually, it’s not hard at all. We should combine actions that create jobs now with other actions that will reduce deficits later. And economic officials in the Obama administration understand that logic: for the past year they have been very clear that their vision involves combining fiscal stimulus to help the economy now with health care reform to help the budget later.

The sad truth, however, is that our political system doesn’t seem capable of doing what’s necessary.

On jobs, it’s now clear that the Obama stimulus wasn’t nearly big enough. No need now to resolve the question of whether the administration should or could have sought a bigger package early last year. Either way, the point is that the boost from the stimulus will start to fade out in around six months, yet we’re still facing years of mass unemployment. The latest projections from the Congressional Budget Office say that the average unemployment rate next year will be only slightly lower than the current, disastrous, 10 percent.

Yet there is little sentiment in Congress for any major new job-creation efforts.

Meanwhile, health care reform faces a troubled outlook. Congressional Democrats may yet manage to pass a bill; they’ll be committing political suicide if they don’t. But there’s no question that Republicans were very successful at demonizing the plan. And, crucially, what they demonized most effectively were the cost-control efforts: modest, totally reasonable measures to ensure that Medicare dollars are spent wisely became evil “death panels.”

So if health reform fails, you can forget about any serious effort to rein in rising Medicare costs. And even if it succeeds, many politicians will have learned a hard lesson: you don’t get any credit for doing the fiscally responsible thing. It’s better, for the sake of your career, to just pretend that you’re fiscally responsible — that is, to be a deficit peacock.

So we’re paralyzed in the face of mass unemployment and out-of-control health care costs. Don’t blame Mr. Obama. There’s only so much one man can do, even if he sits in the White House. Blame our political culture instead, a culture that rewards hypocrisy and irresponsibility rather than serious efforts to solve America’s problems. And blame the filibuster, under which 41 senators can make the country ungovernable, if they choose — and they have so chosen.

I’m sorry to say this, but the state of the union — not the speech, but the thing itself — isn’t looking very good.

[Demeter]

42. U.S. may exempt Treasuries from new bank tax -sources (THAT'S RICH)

http://www.reuters.com/article/idUSTRE60S00820100129

The Obama administration is considering exempting U.S. Treasuries from its proposed new tax on banks in order to prevent disruption in the world's most important funding market, market sources said.

Wall Street fears President Barack Obama's proposed tax to recover bailout funds could deter banks from tapping short-term loans in the repurchase market -- also known as the repo market -- ultimately making borrowing more expensive.

Bankers have taken their concerns to the Treasury Department, which says it is aware of the potential pitfalls and is weighing ways to side-step them.

Sources familiar with the discussions said the suggestions included a carve-out for Treasury securities in the assessment of the new tax -- which the White House wants to levy on non-deposit liabilities of banks with assets over $50 billion -- or a method of risk-weighting assets so that risker instruments would be taxed at a higher rate than safer, more liquid securities such as Treasuries.

Lee Sachs, an adviser to Treasury Secretary Timothy Geithner, said the Treasury has been considering several options for some time, but he declined to comment on specific proposals.

The Treasury "wanted to have dialogue with market participants -- who are in the market every day -- (and Capitol) Hill, and make sure that we do it right, do it in a way that's not disruptive to the markets," Sachs told Reuters in an interview.

Repos are short-term loans collateralized by low-risk assets such as U.S. Treasury securities, and the repo market is a key source of meeting banks' short-term funding needs.

When the Treasury first revealed the administration's plan to tax banks with assets over $50 billion at a rate of 15 basis points on their non-deposit liabilities, officials said the tax would apply to all liabilities that were not deposits or Tier 1 capital holdings.

"This tax could mean that market players pull back from buying Treasuries and mortgages that need funding in the repo market, which could negatively impact the amount of new Treasury debt being issued," said Art Certosimo, head of broker dealer and alternative investment services at BNY Mellon.

"It's a very real possibility and an unintended consequence of the proposed tax."

One Treasury market participant who has spoken to Treasury officials about how to change the fee said the Treasury was very open to suggestions.

JPMorgan analysts, in a research note, calculated that revenue from the fee could be completely offset by the Treasury's increased costs of borrowing.

It could also limit the Federal Reserve's ability to withdraw its extraordinary support for the financial system, said Christian Cooper, an interest-rate strategist at RBC Capital Markets in New York.

The Fed has said it could drain excess cash from the financial system through reverse repurchase agreements when the time comes to tighten monetary policy. In a reverse repo, the Fed sells asset such as Treasuries for cash with an agreement to buy them back at a higher price at a later date.

"The impact (of the tax) would effectively make repo desks a loss leading business, and suddenly a huge chunk of that liquidity goes away," Cooper said.

"This has real implications for money market funds, commercial paper, repos in general and certainly limits the flexibility of the tri-party reverse repos the government is looking at."

[Demeter]

43. Swiss halt deal with U.S. that IDs Americans with secret UBS bank accounts

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/27/AR2010012703556.html

Americans who hid money from the Internal Revenue Service in secret Swiss bank accounts may escape exposure, at least for now.

An agreement between the U.S. and Swiss governments that was supposed to blow the cover on 4,450 accounts at Switzerland's largest bank is in danger of collapse.

The Swiss government said Wednesday that it has suspended the disclosure of information to the United States under the agreement and may seek to renegotiate the deal.

The announcement came days after a Swiss court ruled that it would be illegal for Switzerland to comply with the August accord. The court essentially declared that long-standing secrecy protections trumped the agreement. The decision came in a test case involving a UBS account holder who was fighting to stay in the shadows.

Switzerland's parliament may have the power to salvage the agreement by endorsing it and giving it greater legal force. But even as it noted that possibility, the Swiss government said it would begin by reopening talks with the United States.
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The discussions could lead to "material changes" in the agreement, Justice Minister Eveline Widmer-Schlumpf said at a news conference Wednesday in the Swiss capital, Bern, the Associated Press reported.

In a brief statement, the IRS offered no hint of a compromise.

"The United States has an agreement with the Swiss government to produce information on US account holders at UBS. We expect the Swiss government to continue to honor the terms of the agreement," the IRS said.

Since the agreement was signed, Switzerland has turned over information in six cases. Those account holders consented, Swiss Justice Ministry spokesman Folco Galli said.

The latest developments reopen a long-running legal and diplomatic battle over UBS, which admitted last year that it defrauded the U.S. government by helping Americans dodge taxes. Under a February "deferred prosecution" agreement, UBS agreed to pay the United States $780 million, and the United States agreed to not pursue a potentially crippling criminal case against the bank -- at least temporarily. The U.S. government later ratcheted up a civil suit against UBS, trying to force it to divulge details about 52,000 accounts that had not been declared to the IRS. The Swiss government said it would block UBS from complying with any such court order.

The two governments reached a compromise in August that called for the Swiss to review 4,450 accounts for potential disclosure. The agreement included no explicit guarantee that at the end of the process Switzerland would turn over the names, but the U.S. government seemed to take that for granted.

"I have every reason to trust the Swiss government and expect that we will get these accounts," IRS Commissioner Douglas Shulman said at the time.

If Switzerland fails to deliver the information, the IRS could resume the civil suit against UBS. What's more, following through on the criminal prosecution of the bank "cannot be excluded," the Swiss Justice spokesman said.

In a statement Wednesday, UBS said it "welcomes the fact that the Swiss Federal Council is pursuing a dialog with the US authorities."

[Demeter]

44. Can't Keep My eyes Open

Sweet Dreams everyone! We'll have a repeat of today in the morning....

[Dr.Phool]

47. Kick and rec!

My eyes opened too early his morning.

[Demeter]

49. A Proposal for Genuine Fnancial Reform (Think Tank?)

http://growth.newamerica.net/sites/newamerica.net/files/policydocs/AProposalforGenuineFinancialReform-Publication.pdf

[Demeter]

50. Dissent from Tim Duy's Fed Watch

http://economistsview.typepad.com/timduy/2010/01/dissent.html

The FOMC statement contained a mini-bombshell, the dissent of Kansas City Fed President Thomas Hoenig. I am skeptical, however, that this dissent is a significant shift in the policy environment. Instead, I view the statement as taking another baby step forward to a normalization of monetary policy now that the financial crisis has eased and that the economic environment has firmed. Many policymakers will simply find themselves increasingly uncomfortable holding rates at rock bottom levels while sitting on a bloated balance sheet - regardless of the unemployment rate. Short of a significant reversal of recent economic gains, I would be hard pressed to see the Fed back away from a policy stance that is growing tighter, albeit slowly tighter.



The opening sentence of the statement maintains the position that the economy continues to strengthen while labor markets firm. Some may be surprised about the latter point given the disappointing December employment report. The Fed, however, will be expecting the road to sustained improvement to be bumpy; one month will not significantly impact their outlook given the sharp decline in the pace of job losses in the second half of 2009. The trend is clear. The Fed also upgraded slightly its assessment of business spending, consistent with data such as new orders for capital goods.



The opening paragraph, however, omitted mention of the housing market improvements as noted in the December statement. Are they less confident of a sustained rebound given the drop off that followed this summer's tax credit induced boom? Or do they just want to avoid mention of housing given that they intend to halt stimulus for that sector? In my opinion, of all the Fed interventions over the past year, the decision to acquire $1.25 trillion of mortgage securities is the most politically risky; more on that later.



Also dropped is the mention of monetary and fiscal stimulus. From December:

Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

This evolved in January to:

Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

Certainly, it is no secret that the Fed is closing some of the emergency funding facilities (as noted later in the statement). Nor is it a secret that the Fed intends to halt its securities purchases and that fiscal stimulus will wane in the coming months. But the withdrawal of this support, however, does not appear to significantly impact their fundamental outlook of steady improvement. In other words, they appear to believe the economy can stand on its own - an important precursor to normalizing policy.



That expected improvement, however, will be slow enough to keep policymakers focused on stemming the balance sheet expansion long before raising interest rates. Hence the continued reliance on the phrase:

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

It is widely expected that the Fed would remove the last clause of this sentence before embarking on any campaign to raise rates. And it is here that Hoenig caused something of a stir by objecting to this promise to hold rates low while accepting the current stance of policy. But Hoenig's views are not exactly a secret; he stepped up the hawkish rhetoric this month. He likely remains an outlier on the FOMC; note that it is likely there are outliers on the other side. St. Louis Fed President James Bullard, for instance, has indicated that he is uncomfortable moving to a blanket exit from balance sheet expansion, instead preferring a more state dependent policy that promises to adjust up, down, or steady as necessary. Indeed, he has repeatedly emphasized that interest rates should not be the focus of investor concern. Hoenig, of course, easily undid Bullard's work today and shifted focus back on rates.



I find it inconceivable that the Fed would be keen on normalizing rate policy without a substantial decline in unemployment, absent of course an unexpected surge of inflation. But the balance sheet is another issue. We can debate nonstop the merits of allowing inflation expectations to rise through sustained expansion of the balance sheet, but the Fed simply is not going there without clear evidence that deflation is the bigger risk than inflation. And note that this is not the direction the Fed is thinking - the FOMC statement now sees it as only "likely" inflation will remain subdued, a slightly less certain statement compared to December. The Fed is ceasing expansion of the balance sheet in general and specifically halting its support of housing. The longer the economy exhibits signs of sustained growth - even anemic growth - the more the Fed will tend toward stepping up the pace of balance sheet contraction.



And therein lies a political problem greater than AIG and other financial market interventions. The Fed already plans to halt housing support and expects interest rates to rise. Policymakers are playing with fire here; more than any other sector, housing is considered sacrosanct among politicians. From the WSJ:

In its current buying spree, the Fed has spent most on supporting housing. Consider what might happen if the housing market starts to sag again–as recent numbers suggest is possible–and politicians call for extra support. If the Fed then reinstated mortgage buying, it would look like it was bowing to political demands, even it was actually doing so for purely monetary reasons.

Theoretically, reversing the balance sheet should not be a problem. The Fed can sell back what it bought. Moreover, officials believe tools such as interest on reserves would be effective in keeping sufficient money tied up in reserves even if financial market conditions precluded rapid asset sales. But what if the Fed is already at a point where it is politically impossible to sell mortgage based assets on any significant scale? Perhaps this explains the runup in inflation expectations in financial markets despite high unemployment and policymaker's repeated assertions that they effectively place more weight on low inflation than high unemployment. Financial markets may already anticipate that the Fed's independence was effectively lost the instant they explicitly and massively supported the most politically important sector in the economy. To be sure, academics can argue that such support was necessary to support asset prices and compensate for a very sector specific financial disruption. But backing out by definition means reversing support for that same sector, perhaps directly contributing to a rise in rates that threatens the very market the government is struggling to hold together. AIG could seem like small potatoes compared to the furor that would erupt if the Fed undermines this struggling sector.



Bottom Line: The Fed is crawling ever so slowly to the inevitable in the current economic environment - normalizing monetary policy. Still, the normalization of rate policy is a long way off given the uncertainty over the pace of activity in the second half of this year and the expected persistent high rate of unemployment. To be sure, some policymakers will be eager to move more aggressively, but I think the data would need to be much stronger for this idea to move more broadly through the FOMC. The Fed will first gauge the financial and economic consequences of balance sheet normalization before they turn their attention to interest rates. Given that the Fed is growing increasingly confident that the economy can stand on its own in the absence of stimulus, the Fed is very unlikely to move into a more aggressive stance, despite high unemployment rates.

[Demeter]

54. “TARP Fee” to Restrict Repos, A Big Source of Funding for Dealers

http://www.nakedcapitalism.com/2010/01/tarp-fee-to-restrict-repos-a-big-source-of-funding-for-dealers.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Early on in the TARP fee discussion, we mentioned in passing that it would probably have an impact on repo financing.

Repo means “sale with agreement to repurchase.” It’s a pawn-broker-like procedure that involves securities. The borrower gets to park his holdings with another party, with an agreement to buy them back at a specified future date, with interest, and gets the market value of the instrument back, less a haircut. There are more bells and whistles, but that’s the basic idea.

For the borrower, it’s an ready source of cash, or securities eligible for repo can be used as collateral. For the lender, it’s an alternative to deposits (in theory, a party with cash, like money market fund, is better secured holding a short-term secured loan than having large, unguaranteed deposits in a bank).

Once upon a time, only Treasuries were accepted for repos. But as the derivatives market exploded, so to did demand for collateral (the party who might need to make a payment has to post collateral to prove he can make good on his exposure, with the amount of collateral adjusted if the value of his obligation changes by more than a certain amount). So other types of AAA paper began to be used for repos. As dealers learned to their sorrow, not all AAA paper was created equal. Our favorite nemesis, 2006 and 2007 vintage AAA-rated asset backed securities CDOs, turned out to be pretty close to worthless.

So as expected, the TARP fee will make repo finance more expensive (in this low-yield environment, uneconomic). The financiers must have their leverage, so they are howling.

Now getting the big broker dealers to operate with less leverage is a good idea. This TARP fee could be viewed a back-door measure; raising equity requirements for broker-dealers would achieve a similar result. But the banksters are addicted to cheap leverage, and will fight this restriction tooth and nail.

But the odd bit here is that Team Obama appears not to have considered the impact on the repo market. If so, this is an astonishing oversight. And if the Administration decides to exclude repos, which for big broker-dealers prior to the crisis, was often 50% of their borrowings, pray tell what was the point of taxing non-deposit liabilities in the first place?

From the Financial Times:

The Obama administration’s proposed bank levy is threatening the $3,800bn repurchase market…

The potential impact of the $90bn, 10-year levy on the repo market could also complicate Federal Reserve efforts to drain the huge amounts of liquidity it injected into the financial system during the crisis…

Wall Street executives say the proposed levy, which would charge banks a 15 basis point fee on their liabilities minus insured deposits, will prompt them to reduce repo exposure to cut short-term liabilities.

They say the profit they make on repo contracts – about five basis points – would be wiped out by the levy, making repo transactions loss making…

Brad Hintz, an analyst at Bernstein Research, estimated in a recent note to clients that banks could reduce their levy’s bill by about 10 per cent if they scaled back their involvement in the repo market.

But other analysts say a reduction in banks’ involvement in the repo market could be consistent with the levy’s aim of reducing financial groups’ reliance on short-term funding.

A reduction in repo activity could create problems for the US Treasury, which uses the market as an important conduit to sell bonds used to fund its deficit.

“Most of the repo market is associated with Treasury financing and this will make the market function less efficiently,” said Dominic Konstam, head of interest rate strategy at Credit Suisse.

The Fed has also tested “reverse repos” – selling assets such as Treasuries to bankers for cash, with an agreement to buy them back later at a slightly higher price – as part of its exit strategy from the stimulus provided during the crisis.

Yves here. Can this gang shoot straight? Or is this yet another “appease the peasants” announcement that was planned from the get-go to be neutered later?

[Demeter]

55. US eyes bond issues to offload bank assets (FDIC TOXIC TRASH)

http://www.ft.com/cms/s/0/e139b872-0939-11df-ba88-00144feabdc0.html

The US Federal Deposit Insurance Corporation is working on plans to package billions of dollars of assets from failed banks into securities, a move that will help restart the still dysfunctional markets for mortgage-backed bonds.

If the FDIC goes through with the bond issues it would mark a milestone in government efforts to rid the banking system of troubled assets. The FDIC has more than $36bn in assets on its books from failed institutions seized during the financial crisis.

People involved in discussions said the plan to use the troubled assets to back securities – “securitisation” – is at a preliminary stage. A final decision, which could come in weeks, will depend on finding a structure to provide a sufficient return to the deposit insurance fund.

“The FDIC is going to be a big issuer in the securitisation markets this year,” said Christopher Whalen, managing director of Institutional Risk Analytics. “This could lead the way in terms of recreating the securitisation market, as the FDIC deals could end up being the new template.”

The FDIC plan is similar to a strategy used in the US savings and loan crisis by the Resolution Trust Corporation, the state-owned asset management company charged with liquidating assets from insolvent lenders in the 1980s. “The FDIC is dusting off the playbook of the RTC,” said one person involved.

The FDIC – created by the US government to guarantee deposits after a wave of bank failures during the Great Depression – declined to comment.

However, the regulator, under its chairman Sheila Bair, has been keen to expand its role in stabilising the US financial system. This has included pushing banks to adhere to stricter rules and underwriting standards when they use mortgages and other loans to back securities.

The market for such securitised assets was once a source of hundreds of billions of dollars a year of financing for banks and companies, but has been largely closed for private mortgage finance since investors lost billions of dollars on mortgage- related debts in the crisis. The US mortgage market is mainly financed through US government-backed entities, such as Fannie Mae and Freddie Mac.

One option being considered by the FDIC is selling bonds with a US government guarantee in order to ensure they have triple A credit ratings.

WAKE UP, CAMPERS, IT'S GROUNDHOG DAY! DON'T FORGET TO WEAR YOUR BOOTIES!

[Demeter]

56. The China Fix By James McGregor

http://www.time.com/time/magazine/article/0,9171,1955426,00.html

In my more than two decades in China, I have seldom seen the foreign business community more angry and disillusioned than it is today. Such sentiment goes beyond the Internet censorship and cyberspying that led to Google's Jan. 12 threat to bail out of China, or the clash of values (freedom vs. control) implied by the Google case. It is about the perception that antiforeign attitudes and policies in China have been growing and hardening since the global economic crisis pushed the U.S. and Europe into a tailspin and launched China to its very uncomfortable stardom on the world stage.

Visiting CEOs' banquet-table chatter is now dominated by swapping tales of arrogant and insolent Chinese bureaucrats and business partners. The litany includes purposefully inconsistent and nontransparent enforcement of regulations, rampant intellectual-property theft, state penetration of multinationals through union and Communist Party organizations, blatant market impediments through rigged product standards and testing, politicized courts and agencies that almost always favor local companies, creative and selective enforcement of WTO requirements ... The list goes on.

The foreign business community in China has deep respect and affection for the Chinese people and their hard-earned success. But more than a few foreign business leaders are asking themselves if they have been bamboozled by the system. Multinationals have been solid citizens in China, handing over heaps of capital, technology, training, source code, best practices and proprietary products to joint-venture partners they were forced into bed with. They have funded schools, orphanages, disaster reconstruction, overseas scholarships and all manner of poverty-alleviation programs. But now that the China market matters more to them, it appears that China couldn't care less. Increasingly difficult China-market access is the immediate worry. But many are looking ahead and losing sleep over expectations that their onetime partners are morphing into predators — and that their own technology and know-how will be coming back at them globally in the form of cut-price products from subsidized state-owned behemoths.

Read more: http://www.time.com/time/magazine/article/0,9171,1955426,00.html#ixzz0e6YJYAE9

SOLID CITIZENS? MUTINATIONALS? SO THE CHINESE GOT TO SCREW YOU BEFORE YOU SCREWED THEM?

[Demeter]

57. Steve Keen: The Economic Case Against Bernanke

IT'S ALL ACADEMIC, AT THIS POINT, BUT...

http://www.nakedcapitalism.com/2010/01/steve-keen-the-economic-case-against-bernanke.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

By Steve Keen, Associate Professor of Economics & Finance at the University of Western Sydney and author of Debunking Economics: The Naked Emperor of the Social Sciences

The US Senate should not reappoint Ben Bernanke. As Obama’s reaction to the loss of Ted Kennedy’s old seat showed, real change in policy only occurs after political scalps have been taken. An economic scalp of this scale might finally shake America from the unsustainable path that reckless and feckless Federal Reserve behavior set it on over 20 years ago.

Some may think this would be an unfair outcome for Bernanke. It is not. There are solid economic reasons why Bernanke should pay the ultimate political price.
Haste is necessary, since Senator Reid’s proposal to hold a cloture vote could result in a decision as early as this Wednesday, and with only 51 votes being needed for his reappointment rather than 60 as at present. This document will therefore consider only the most fundamental reason not to reappoint him, and leave additional reasons for a later update.

Misunderstanding the Great Depression

Bernanke is popularly portrayed as an expert on the Great Depression—the person whose intimate knowledge of what went wrong in the 1930s saved us from a similar fate in 2009.

In fact, his ignorance of the factors that really caused the Great Depression is a major reason why the Global Financial Crisis occurred in the first place.

The best contemporary explanation of the Great Depression was given by the US economist Irving Fisher in his 1933 paper “The Debt-Deflation Theory of Great Depressions”. Fisher had previously been a cheerleader for the Stock Market bubble of the 1930s, and he is unfortunately famous for the prediction, mere days before the 1929 Crash:

Stock prices have reached what looks like a permanently high plateau. I do not feel that there will soon, if ever, be a fifty or sixty point break below present levels, such as Mr. Babson has predicted. I expect to see the stock market a good deal higher than it is today within a few months. (Irving Fisher, New York Times, October 15 1929)

When events proved this prediction to be spectacularly wrong, Fisher to his credit tried to find an explanation. The analysis he developed completely inverted the economic model on which he had previously relied.

His pre-Great Depression model treated finance as just like any other market, with supply and demand setting an equilibrium price. However, in building his models, he made two assumptions to handle the fact that, unlike the market for say, apples, transactions in finance markets involved receiving something now (a loan) in return for payments made in the future. Fisher assumed

(A) The market must be cleared—and cleared with respect to every interval of time.

(B) The debts must be paid. (Fisher 1930, The Theory of Interest, p. 495)

I don’t need to point out how absurd those assumptions are, and how wrong they proved to be when the Great Depression hit—Fisher himself was one of the many whose fortunes were wiped out by margin calls they were unable to meet. After this experience, he realized that his previous assumption of equilibrium blinded him to the forces that led to the Great Depression. The real action in an economy occurs in disequilibrium:

We may tentatively assume that, ordinarily and within wide limits, all, or almost all, economic variables tend, in a general way, toward a stable equilibrium… But the exact equilibrium thus sought is seldom reached and never long maintained. New disturbances are, humanly speaking, sure to occur, so that, in actual fact, any variable is almost always above or below the ideal equilibrium…

It is as absurd to assume that, for any long period of time, the variables in the economic organization, or any part of them, will “stay put,” in perfect equilibrium, as to assume that the Atlantic Ocean can ever be without a wave. (Fisher 1933, p. 339)

A disequilibrium-based analysis was therefore needed, and that is what Fisher provided. He had to identify the key variables whose disequilibrium levels led to a Depression, and here he argued that the two key factors were “over-indebtedness to start with and deflation following soon after”. He ruled out other factors—such as mere overconfidence—in a very poignant passage, given what ultimately happened to his own highly leveraged personal financial position:

I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt. (p. 341)

Fisher then argued that a starting position of over-indebtedness and low inflation in the 1920s led to a chain reaction that caused the Great Depression:

(1) Debt liquidation leads to distress selling and to

(2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes

(3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be

(4) A still greater fall in the net worths of business, precipitating bankruptcies and

(5) A like fall in profits, which in a “capitalistic,” that is, a private-profit society, leads the concerns which are running at a loss to make

(6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to

(7) Pessimism and loss of confidence, which in turn lead to

(8) Hoarding and slowing down still more the velocity of circulation. The above eight changes cause

(9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest. (p. 342)

Fisher confidently and sensibly concluded that “Evidently debt and deflation go far toward explaining a great mass of phenomena in a very simple logical way”.

So what did Ben Bernanke, the alleged modern expert on the Great Depression, make of Fisher’s argument? In a nutshell, he barely even considered it.

Bernanke is a leading member of the “neoclassical” school of economic thought that dominates the academic economics profession, and that school continued Fisher’s pre-Great Depression tradition of analysing the economy as if it is always in equilibrium.

With his neoclassical orientation, Bernanke completely ignored Fisher’s insistence that an equilibrium-oriented analysis was completely useless for analysing the economy. His summary of Fisher’s theory (in his Essays on the Great Depression) is a barely recognisable parody of Fisher’s clear arguments above:

VERY LONG ARTICLE CONTINUES WITH GRAPHIC PORN AND MANY GOOD POINTS THAT WILL BE ENTIRELY IGNORED FOR ANOTHER 12 YEARS....

[Demeter]

61. Bernanke Vote Closer Than It Appeared

http://www.nakedcapitalism.com/2010/01/bernanke-vote-closer-than-it-appeared.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

The vote on Bernanke’s confirmation produced 30 “no” votes, more than any previous vote on a Fed chairman, even exceeding those against Paul Volcker after he had driven the economy into the most severe post-recession downturn in his effort to wring inflation out of the economy.

But that was still a comfortable win, right, even if the finally tally showed considerable unhappiness with Bernanke? Not at all. This observation came from an informed Hill observer:

Despite the wide margin, they were genuinely shitting bricks last Thursday. He was on the brink of going down, but they rallied and won. It was definitely closer than it appeared…. It’s just that once he got the votes, the undecideds broke hard in his direction.

And one of the factors in Bernanke and the Administration prevailing is that progressives believe in fighting fair, which puts them at a considerable disadvantage. As we pointed out, the real vote on the Fed confirmation was the cloture vote (the vote to force an end to debate and move on to a vote), particularly with several senators having put a “hold” on the Bernanke vote (a threat to filibuster). Conservatives (many of whom had joined with progressives to oppose to Bernanke) will close ranks and use the filibuster (hence the importance of the loss of the Democrat’s 60 votes in the Senate with the election of Scott Brown in Mass. The 60 votes would matter less if the Republicans had some compunctions about using filibusters and other procedural measures to prevail).

As Ryan Grim explained at Huffington Post:

The seven senators who voted for cloture but against Bernanke included six Democrats and Florida Republican Sen. George Lemieux, who is retiring in 2010. Sen. Ted Kaufman (D-Del.) is also retiring. Senators on their way out often promise leadership they will “be there on cloture,” but are then freed to vote against final passage. Sen. Byron Dorgan (D-N.D.) is also retiring and voted yes on cloture but no on final passage.

Democratic Sens. Barbara Boxer (Calif.), Al Franken (Minn.), Tom Harkin (Iowa) and Sheldon Whitehouse (R.I.) also flipped their votes.

Whitehouse told HuffPost after the vote that it would have been hypocritical of him to filibuster the nominee, because he’d been critical of his colleagues who abused the filibuster in the past. “I’m for moving through cloture on this stuff. I’ve been annoyed by the Republican cloture blockades and I’ve been critical of members of my caucus who’ve denied the leader cloture. It would be highly inconsistent to vote against cloture,” he said. “I hope that my vote against him will help send a message to economic leadership that they need to pivot and they need to back off the record of, ‘Banks win every dispute with consumers and the public.’”

Franken expressed a similar sentiment. “While I voted for cloture because I believed this nomination deserved an up or down vote, I couldn’t in good conscience support it,” Franken said in a statement after the vote, after declining to talk to a HuffPost reporter in the hallway.

Franken said he opposed the nomination because he didn’t get the assurances he wanted about consumer protection. “A strong Consumer Financial Protection Agency and other consumer protections are essential to securing our economy for Main Street and the middle class,” Franken said. “I needed to know that a robust CFPA would be a part of financial regulatory reform in order to support Chairman Bernanke’s confirmation to a second term. As governor of the Federal Reserve and then Chairman of the Federal Reserve, Bernanke did almost nothing to protect consumers and when he did, it was too late. I needed the assurance that would improve. And I didn’t get that.”

“I wasn’t somebody who wanted to prevent a vote on it,” Dorgan said after the vote.

The lesson here: Centrist and conservative senators are willing to deny an up-or-down vote on policy they oppose, but progressive senators often are not. That dynamic tilts political power toward leadership and conservative priorities.

Bernanke’s opponents pointed to the relative success of their push against his confirmation, which was considered a virtual certainty two weeks ago but became an open question following the election of a Republican, Scott Brown, in the Massachusetts Senate election. “I think it’s important for him to note that he did have 30 votes-plus against him. I think the message is, take a look at Main Street, not just Wall Street,” Sen. Barbara Boxer (D-Calif.) said.

As the Israelis say, “Love your enemy, for you will become him.” Progressives seem not to have made that leap.

DEMETER SAYS: DEMOCRATS ARE THEIR OWN WORST ENEMY.

[Demeter]

63. A Colossal Failure Of Governance: The Reappointment of Ben Bernanke

http://baselinescenario.com/2010/01/28/a-colossal-failure-of-governance-the-reappointment-of-ben-bernanke/

When representatives of American power encounter officials in less rich countries, they are prone to suggest that any failure to reach the highest standards of living is due in part to weak political governance in general and the failure of effective oversight in particular. Current and former US Treasury officials frequently remark this or that government “lacks the political will” to exercise responsible economic policy or even replace a powerful official who has clearly become a problem.

There is much to be said for this view. When a minister or even the head of a strong government agency is no longer acting in the best interests of any country – but is still backed by powerful special interests — who has the authority, the opportunity, and the fortitude to stand up and be counted?

Fortunately, our constitution grants the Senate the power to approve or disapprove key government appointments, and over the past 200 plus years this has served many times as an effective check on both executive authority and overly strong lobbies – who usually want their own, unsuitable, person to be kept on the job.

Unfortunately, two massive failures of governance at the level of the Senate also spring to mind: first, the strange case of Alan Greenspan, which stretched over nearly two decades; second, Ben Bernanke, reappointed today (Thursday).

Greenspan, as you recall, was worshiped as some sort of economic magician. Even his most asinine comments were seized upon by a legion of acolytes. Instead of providing meaningful periodic oversight, every Senate hearing was essentially a recoronation.

And now we can look back over 20 years and be honest with ourselves: Alan Greenspan contends for the title of most disastrous economic policy maker in the recent history of the world.

Some on Wall Street, of course, would disagree – arguing that the financial sector growth he fostered is not completely illusory, that we have indeed reached a new economic paradigm due to the Greenspan tonic of deregulation, neglect, and refusal to enforce the law. Prove the ill-effects, they cry.

What part of 8 million net jobs lost since December 2007 do you still not understand?

And now the same Greenspanians and their fellow travelers rally to the support of Ben Bernanke’s troubled renomination. Certainly, they concede that Bernanke was complicit in and continued many of Greenspan’s mistakes through September 2008. But, they argue, he ran a helluva bailout strategy after that point. And, in any case, if the Senate had refused to reconfirm him - financial sector representatives insist – there would have been chaos in the markets.

Take that last statement at face value and think about it. Have we really reached the situation where the Senate as a body and individual Senators – accomplished men and women, who stand on the shoulders of giants – must bow down before financial markets and high-ranking executives who are really just talking their book?

Here’s what markets really care about: credible fiscal policy, sufficiently tough monetary policy, and the extent to which big banks will be allowed to run amok – and then get bailed out again.

Reappointing Ben Bernanke solves none of our problems. In fact, given his stated intensions, a Bernanke reappointment implies larger bailouts in the future – thus compromising our budget further with contingent liabilities, i.e., huge payments that we’ll have to make next time there is a crisis. What kind of fiscal responsibility strategy is this?

Rather than messing about with a meaningless (or damaging) freeze for part of discretionary spending, the White House should fix the financial system that – with too big to fail at its heart – has directly resulted in doubling our net government debt to GDP ratio from 40 percent (a moderate level) towards 80 percent (a high level) in a desperate attempt to ward off a Second Great Depression.

If you think we can sort out finance with Ben Bernanke at the helm, it was sensible to reappoint him. But when the time comes for members of the Senate themselves to be held accountable, do not be surprised if people point out that pushing Bernanke through – come what may – was the beginning of the end for any serious attempt at reform.

Ultimately, sensible democratic governance prevails in the United States. Sometimes it takes a while.

By Simon Johnson

66 COMMENTS FOLLOW--WORTH READING!

[Demeter]

71. Wall Street Journal Questions Bernanke's Credibility and Political Will

http://globaleconomicanalysis.blogspot.com/2010/01/wall-street-journal-questions-bernankes.html


...On Monday, I was delighted to see the Wall Street Journal make a different case against Bernanke. Please consider The Bernanke Nomination

Majority Leader Harry Reid declared his support for Mr. Bernanke on Friday, but not before extracting what he said were concessions about future Fed policy.

The Fed chief promised, said Mr. Reid, that he would "redouble his efforts" to make credit available and that Mr. Bernanke "has assured me that he will soon outline plans for making that happen, and I eagerly await them."

Redouble? The Fed has already kept interest rates at near zero for more than a year, and it is buying $1.25 trillion in mortgage-backed securities to refloat the housing bubble, among other interventions into fiscal policy and credit allocation. Is the Fed going to buy another $1.25 trillion, or promise to keep rates at zero for another 14 months?

Our own view is that Mr. Bernanke is already far too susceptible to political pressure. As a Fed governor, he was Alan Greenspan's intellectual co-pilot last decade when their easy money policies created the housing mania. When Congress later put political pressure on the Fed to direct credit toward housing, and even to student loans, Mr. Bernanke (who was then chairman) also quickly obliged.

More ominously for the next four years, Mr. Bernanke continues to deny any Fed monetary culpability for creating the mania. Shortly after the New Year, even with his nomination pending, Mr. Bernanke issued an apologia that was striking for its willingness to play to the Congressional theory of the meltdown by blaming bankers and lax regulators.

Yes, much of Wall Street wants to see Mr. Bernanke confirmed. The Street is currently making a bundle off Fed policy, as it borrows at near-zero rates and lends long, and the banks don't want that to end. The banks also loved negative real interest rates in the middle of the last decade, and we know how that turned out. Wall Street always loves easy money—until inflation returns, or the bubbles pop.

The next Fed chairman is going to need the market credibility, and the political support, to raise interest rates when much of Congress and Wall Street will be telling him to stay at zero. That is the real reason to oppose a second term for Chairman Bernanke.

That is a pretty damning appraisal of Bernanke's credibility. However, the journal forgot to mention Bernanke's incompetence, love of mathematical formulas, and ridiculous adherence to inflation expectation theory, while ignoring credit and housing bubbles that grandma Millie could see.

Most galling of all is Bernanke's self serving attempt to blame everyone but himself. For details please see Ben Bernanke Looks In Mirror, Sees Barney Frank.

Geithner Attempts A Rescue

Tim Geithner has no credibility left either (not that he ever had any in the first place), but that is not stopping Geithner from protecting his cohort in crime, Ben Bernanke.

Please consider Geithner: Rejecting Bernanke Would Have "Very Troubling" Consequences.

Treasury Secretary Timothy Geithner is warning that a Senate rejection of Federal Reserve Chairman Ben Bernanke's nomination for a second term would lead to "very troubling" reaction from the financial markets.

Geithner, in the interview with Politico, said he understood why Bernanke was having a tough time, saying that the country is "in a moment where people are incredibly angry and frustrated by the damage this crisis caused."

"That's perfectly understandable, and everybody involved in this effort is bearing a lot of the brunt of that frustration and anger," he said.

So dear Timothy, are we supposed to appoint Fed chairmen on the basis of whether or not Wall Street Approves? That has worked out well, now hasn't it?

Here's the deal Timothy: Bernanke is taking the heat because he followed the ridiculous policies of Greenspan, is clueless about what caused the great depression, could not see a housing bubble until it bit him in the ass three times, denied a recession was in the works, has unconstitutionally usurped authority in his bailout schemes, has selective memory, and finally, Bernanke the gall to deny his and the Fed's role in this mess.

Of course .... that's exactly why Wall Street thinks Bernanke is perfect for the job.

[Demeter]

58. CROSSPOST: Don't forget how we got to this place

http://www.tampabay.com/opinion/columns/article1069013.ece


....Lanchester posits that capitalism won the worldwide beauty contest with communism and then no longer had to keep up appearances.

Through much of the 20th century each system was competing to demonstrate that it offered their citizens a better way of life. Western democracies did so by ensuring that the new wealth created by a dynamic market economy was equitably shared.

In post-World War II America, as worker productivity rose so did real wages. It wasn't until the 1970s — greatly picking up speed during Ronald Reagan's presidency — that the two started to diverge, with workers left behind.

When the Soviet Union claimed that soulless capitalists cared nothing for workers, the West responded by expanding labor rights and adopting policies that allowed unions to act as a counterweight to capitalist impulses. As Lanchester puts it, "the jet engine of capitalism was harnessed to the oxcart of social justice." The result was that Western democracies provided the best possible lives for ordinary people.

But once capitalism vanquished its enemy, there was less political value in workers being treated fairly, which allowed America's financial oligarchy to essentially run amok. It was a vicious cycle — at least as far as average Americans are concerned — where the wealthy donor class wielded outsized political influence leading to the rewriting of tax and regulatory rules that led to even bigger paydays for capital and the marginalization of workers.

Suddenly, capital gains were being taxed at a lower rate than wages, trade agreements were written to allow capital to flow wherever workers were cheapest, laws against union-busting were barely enforced and sensible limits on the riskiness of the financial sector such as the Glass-Steagall Act were repealed.

Our nation got richer, but average workers didn't. Instead, Americans lost their jobs as capital moved to places like Cambodia where apparel workers for U.S. name brands are paid about 33 cents per hour — not even close to a living wage there. Politicians greeted this dislocation and exploitation with "can't stop progress." No longer did they need to show the world that capitalism had a heart.

The donor class loved it — almost to death, as we saw in September 2008 when the meltdown hit, after which taxpayers saved the day.

That's how we got here....

[Demeter]

59. 2011 Chevrolet Volt GM hopes we'll all get juiced when this model debuts

http://www.marketwatch.com/story/2011-chevrolet-volt-the-juice-is-about-to-flow-2010-01-30?siteid=YAHOOB

...this plug-in electric-gas powered car that should be in Chevy showrooms about the time we start speculating over who will be in the 2011 Super Bowl.

Consider this: If your daily commute is about 35 miles, you may never use the gas that is in the tank when you take delivery. Good news if the price of gas heads still higher -- bad news if your family runs a gas station.

The test car I drove around the old home stadium of the Washington Redskins (the Volt has a brighter future) was "pretty close" to the one that will be sold. It looks like a more contemporary Chevy design but very much a part of the family.

Punch a button, move the big upside down U-shaped shifter into drive and the first thing you hear is virtually nothing. In the all-electric mode, the car is rather quiet but there is some tire noise on the pavement. Of course, that could change in the final production model.

Zero to 60 comes up in about 9 seconds, according to various reports, and that seemed about right. Punching the "Sport" button in the electric mode did produce a nice touch of go power with the pedal to the metal. Handling was not sports-car like, but should please most buyers of this car. In short, it drove much like any other Chevy, with the exception of engine noise.

In electric-only mode, the T-shaped lithium-ion battery pack under the center console and rear seat provide the juice for a 149-horsepower electric motor that will be your only source of power for up to 40 miles. Your volts per mile may vary. The battery setup limits rear seating to just two passengers.

Then a 1.4-liter four-cylinder gasoline-powered engine kicks in, but not the way you may think. The engine only creates electricity to power the car beyond the 40 miles. It will keep you going for about 300 miles when a stop for gas (and perhaps other reasons) will be necessary.

GM engineers have tested the Volt and its batteries all the way from Death Valley, California, to the wilds of Canada just below the Arctic Circle to make sure they operate properly. The battery packs are heated and cooled to maintain their proper disposition and should last 10 years, or well over 100,000 miles.

Using a standard 110-volt outlet, Chevy maintains the Volt will recharge in eight hours. Using a 240-volt available charger, the batteries are ready to go in three hours....

SOUNDS GREAT FOR A PAPER ROUTE--TOO BAD THERE ARE NO PAPERS FOR HOME DELIVERY ANY MORE....

[Demeter]

60. No Comment Necessary

[hamerfan]

75. LOL! Love it!

Thanks again for all you do, Demeter. Those of us who are perennial lurkers greatly appreciate the effort put forth here!
hamerfan

[Demeter]

81. No Effort, It's Fun!

And I don't feel so alone when I read about these criminals who don't know I exist except as an appetizer....

[Demeter]

62. Br’er Rabbit Lives! Banks Now Favoring Paying “Insurance” Fee

http://www.nakedcapitalism.com/2010/01/brer-rabbit-lives-banks-now-favoring-paying-insurance-fee.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Is the modern version of “Beware of Greeks bearing gifts” “Beware of ‘reform’ proposals that bankers favor”?

The fact that banksters seem to be bowing to the inevitable, that they will have to submit to some changes in how they do business, should be a step in the right direction. But their inability to accept their central role in creating the worst economic disaster in modern times is stunning. The implosion almost certainly would have brought about a depression absent massively liquidity injections, and still appears like to leave us with years, if not a decade, of halting growth and dislocations for those whose savings were given a nasty haircut. And the lack of real reform means the odds of creating bigger bubbles with an even worse aftermath remains high.

And why should we be a little wary of this new found religion among our financial overlords? Consider this report from the Financial Times:

Support has been growing among regulators and politicians for an insurance levy as the best way to ensure that the burden of big bank collapses would not fall on taxpayers. But until now bankers have resisted the idea. They say the impetus for considering a global levy came from President Barack Obama’s $90bn balance sheet levy, which will tax banks in the US to recover the cost of an earlier bail-out programme.

Yves here. So why are the bankers rallying behind an Obama-type fee? Because the charge is too low, natch! The banks no doubt noticed what James Kwak figured out when the fee was announced (to howls, remember, even mutterings of Constitutional challenges?):

The best thing about the tax is that it helps level the playing field between large and small banks. From Q4 2008 through Q2 2009, large banks had a funding cost that was 78 basis points lower than that of small banks, up 49 basis points from 2000-2007. Closing that gap could lead some of those customers, faced with lower interest payments on deposits or higher fees, to take their money elsewhere. (Of course, they are already getting lower interest and paying higher fees, so there may not be much of an effect.)

But the tax isn’t nearly big enough! It’s being calculated as 15 basis points of uninsured liabilities, calculated as assets minus Tier 1 capital minus insured deposits. 15 basis points is a lot less than 78 basis points. And if the FDIC cost of funds data are based on all liabilities (not just uninsured liabilities),* then charging 15 basis points on uninsured liabilities only increases the overall cost of funds by about 7 basis points (at least in the administration’s example). This doesn’t come close to compensating for the TBTF subsidy.

Yves here. It gets even better:

Josef Ackermann, chief executive of Deutsche Bank, told the Financial Times on Friday : “To help solve the too-big-to-fail problem I’m advocating a European rescue and resolution fund for banks. Of course, the capital for this fund would have to come from banks to a large degree.”

Yves again. Ahem, to a large degree? How about in toto? Oh, because it might mess up precious bank economics. FDIC insurance is too cheap too; the FDIC did not have sufficient resources to handle the savings and loan crisis. Congress had to allot additional funds to create the Resolution Trust Corporation, which acquired the assets of dud thrifts.

And Team Obama is now considering exempting repos, one of the Street’s favored sources of cheap funding, so this won’t do much to solve the leverage problem either (yes, you can make a case for excluding Treasuries, but don’t expect any carve-outs to stop there).

So all this change of posture means is that some bank leaders have ascertained that some gestures that have modest costs attached to them would make for good PR. So expect theatrics and public declarations to make these measures sound more effective than they really are.

Update: The Wall Street Journal reports that top bankers got such a cold shoulder at Davos that it might finally be dawning on them that they not only screwed up big time, but also overplayed their hand in the year after the crisis. But I would not expect a wee bit of reality penetrating their well-developed defenses to lead to a change of heart, merely a change of tactics. And some organizations still appear to be beyond redemption:

….a senior London-based investment banker offered this wager: Lloyd Blankfein, CEO of Goldman Sachs, would be out within two years, he said, and he was prepared to back up his bet with millions of pounds…

Asked about the wager over Mr. Blankfein, Goldman spokesman Lucas van Praag said: “It is preposterous that The Wall Street Journal would even consider publishing such effluent.”

[Demeter]

64. AIG exec's big loan from Blankfein By MARK DeCAMBRE

http://m.nypost.com/ms/p/nyp/nyp/s07CAfiuwyptOI7nF8dg6uA/view.m?id=20570&storyid=4.1.996404074

Call them the friends of Lloyd Blankfein.

Months before the government negotiated a cushy deal in which the hobbled American International Group paid several banks top dollar for esoteric securities that had collapsed in value, a top AIG official got himself a sweet deal on a mortgage from Blankfein's firm, Goldman Sachs.

Rodney O. Martin, chief operating officer of AIG's life insurance unit, and his wife, Deborah, got a 30-year, $4 million loan from Goldman's bank to buy an apartment at 15 Central Park West, which Blankfein calls home.

Under the terms of the mortgage, the Martins were charged a 4.8 percent interest rate, and were required to make interest-only payments for the first 10 years. The interest rate was about two percentage points less than the average rate at the time.

The loan came just before several banks, including Goldman, received billions from AIG to settle derivatives contracts under a plan sanctioned by the Federal Reserve Bank of New York. The revelations of the payments, including Goldman's $13 billion payday, were kept quiet until the end of 2008, when they triggered a public outcry because billions in taxpayer funds had already been shelled out to prevent AIG from collapsing.

The news about the Martins' mortgage deal, which was first reported by Gawker.com, is likely to raise fresh questions about AIG's payments to Goldman, and whether the mortgage is somehow connected to those payments.

Lucas Van Praag, a spokesman for Goldman, said that its lending arm GS Bank USA "serves our private clients and we do not comment on those activities."

[Demeter]

65. I'm Being Dragged Off to the Movies

Carry on (as if anything or anybody could stop you guys!)

[bread_and_roses]

66. An Ugly Week For The Human Race And Other Living Things

A very fine rant indeed - I only wish it were only ranting, and not all too on target. And not even a mention of Haiti, though he managed to get almost everything else in - and while Groundhog's Day doesn't come up, it can read as illustrative of just how deep we are in that particular rabbit-hole, to mix in another metaphor


http://www.commondreams.org/view/2010/01/30

by David Michael Green

... The story of American politics over the next five years has already been written. In desperation for solutions, and having already forgotten how much they hated the Bush nightmare, voters will soon be handing the keys to American government back to the Republican Party, which will then promptly fail, even more egregiously than the Democrats, to provide solutions. Neither further tax cuts for the wealthy, nor the slashing of social programs, nor gay-bashing, nor some jive war in some banana republic will cure what ails Americans, and it may no longer even successfully distract them for more than a few minutes.

... Then, of course, there's the so-called progressive party, now in charge. You know, the one that's supposed to provide an alternative, in a democratic system, to the party of death, destruction and deceit. Yeah, that one. Except it turns out that the Democrats are no alternative at all. At least when it comes to policy. If, on the other hand, you like your politicians to be embarrassingly weak, inept and ineffectual, then the latter-day Three Stooges - Barack, Harry and Nancy - offer a refreshing break from the linebacker eyes and the freight train punch of the GOP killers.

But, of course, you always wind-up back there anyhow. What the last thirty years make increasingly clear is that the Democrats have simply become a sort of halfway holiday from the worst excesses of the GOP, a kind of spring break from the serious business of wrecking a superpower. When things get really obnoxious under Republican rule, the Dems come in to provide the requisite comedic interlude for a few years. When the economy is good, they may even be invited to actually stay a bit longer, as Bill Clinton was - provided, of course, that he didn't actually mess with anything that mattered. When money is tight, however, comatose ineptitude as a governing philosophy doesn't play so well, and the duration of the Democratic intermission gets short.

Such is the meaning of another of the dismal events of the past week, the president's State of Potemkin speech. What a piece of crap that was. What an abysmal laundry list of platitudes that will be not be remotely remembered by anybody in ten years or even ten days. This White House seems to have now gone full-on Bill Clinton, trotting out silly quarter-measure policy initiatives that even they don't believe in, begging the rabid right to punk them yet again and again, and studiously avoiding any action or rhetoric that would threaten even half a percent of the take collected every day by the predatory governing interest structure for whom America is not a country so much as a handy aggregation and collection apparatus.

Deja Vu all over again, as we used to joke. No joke now. Scraps and Bones. Scraps and Bones.

[Demeter]

67. Not Even Spare Change, Anymore

Well, somebody's got to start, so I guess it's up to me.

I have two confessions to make.

1) I'm a terrible Pollack. I hate most Polish food--or at least, I did. Then I started cooking it myself. And it turns out, I just hate the way my family cooked. There comes a point in a cabbage's life where it turns from food to toxic waste, and that's the point at which it was served.

I made glombki Wednesday. Not following the traditional recipe, but using various efficient shortcuts, a curly cabbage instead of the solid flat leaf, and cooking the meat before stuffing it into the cabbage rolls. I only put it in the oven for an hour, to marry the flavors, and frankly, I could have eaten the whole batch, except I was making it for a client, but it was good. And it didn't do nasty things in the digestive system, either. I've found this to be true for pierogi, kielbasa, mushrooms, so there's a lesson to be learned. I'm sure you could apply it to the economy, too, something about using the latest in modern economics instead of stuff that's centuries old and completely discredited as useless and harmful fad and superstition: take what you know about best practices, cut out the time-consuming and unnecessary stuff, lower the fat and salt and up the freshness and flavor, and voila! Remember you are trying to make good happen!

An economy that serves its people--like Denmark. Yes, they have the highest taxes, but they put those pfennig to work for the PEOPLE--who have education, healthcare, clean environment, income support, and no standing armies or standing enemies. A nation could do much worse.

Confession #2: I took the Kid to see Chipmunks: the Squeakquel. I loved it.
Not only did the computer animation excel, but the plot stayed true to the Chipmunks. They didn't have to indulge in martial arts or drugs or gratuitous violence and sex, magic or fantasy (beyond the Chipmunks themselves); just character, plot, snappy dialog and music.

Is that too much to ask of a movie? And I must say, that the actors who were there in person, as well as the voice actors, were very good. It didn't have any sour notes or funny moments, although I felt like it was teetering on the brink of crashing down around the anti-hero's ears a couple of times, but the director maintained the balance, and it worked. Unlike the Sherlock Holmes travesty of last week, I can recommend this to all ages.

Yes, I liked the Chipmunks as a kid, although it seems to me they didn't last very long in the original season. But it wasn't reliving my childhood so much as seeing something fresh in well-established culture. Kind of like updating Polish cooking into this century...

Well, so much for confession. I'm also down to 89 emails already (the number grows back a bit each week), so maybe by Spring I'll have cleared the inbox...

[DemReadingDU]

72. Squeakquel trailer

http://www.munkyourself.com/

Looks entertaining!


My granddaughter turned 3 today. So we're over there for the birthday party, and all the neighborhood kids are there with their parents. It's like Christmas all over again. I've never seen so many plastic presents, for a three-year-old. The other grandma likes to buy, buy, spend, spend (toys, clothes, food, whatever). From me? Little granddaughter received a book about 5 princesses, with a little rhyme for each one. Cute. Her little brother turns 2 next month, so we'll get to do this again. I have the perfect Elmo book for him. When my kids were small, we couldn't afford so many toys, so we would buy a book every so often. Still have all of them. You can tell the books my kids really liked, they are held together by lots of tape.

[Demeter]

74. You're my kind of Grandma!

Many happy returns of the day!

[Demeter]

68. SIGTARP Opens Investigation into NY Fed (and House Oversight Committee Turn Up Heat)

FROM TUESDAY

http://www.nakedcapitalism.com/2010/01/sigtarp-opens-investigation-into-ny-fed-and-house-oversight-committee-turn-heat.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Oh, this is starting to get VERY interesting. L’affaire Fed/AIG is beginning to smell a little like Watergate, where an imperial organization that thinks it writes its own rules (then the Nixon administration, here the Fed) fights tooth and nail to keep certain activities hidden well away (recall, for instance, the Saturday night massacre).

Now of course, the Fed lacks the Nixonian appetite for dirty tricks and open confrontation. And unlike Watergate, where a crime had been committed, here instead we have a mystery: why is the Fed so desperately to hide the details of the AIG bailout, particularly since the bulk of what they say they are trying to sequester is already in the public domain? (And my own little pet peeve is that the focus has been strictly on how much Geithner knew and when. Ahem, what about Bernanke? He and Paulson were virtually joined at the hip during the crisis, and Paulson was heavily involved in all the bailouts. Was the NY Fed a rogue organization of some sort? How can you not say the board of governors is not ultimately responsible for a matter as significant as the AIG rescue?)

As this little scandal brews, the Fed has engaged in the classic error of withholding documents, so that the cover-up may well prove to be a more serious matter than the underlying chicanery (although we rather doubt that; more on that in due course). And remember, the Fed is a regulator! Here we have a body that has as one of its significant duties enforcing rules, both legislation as well as its own regulations, bending them in its dealing with the SEC and refusing to comply with subpoenas. Why should the public trust an organization that puts itself above the rule of law?

Darrell Issa of the House Committee on Oversight and Government Reform has issued a report with a rather ponderous title (”Public Disclosure As A Last Resort:How the Federal Reserve Fought to Cover Up the Details of the AIG Counterparties Bailout From the American People”) based on the famed 250,000 pages of documents from the New York Fed obtained via subpoena. (I have only a pdf; Google does not show an online version as of this hour). One of the many striking bits is that the Fed is still stonewalling on some of its subpoenas:

The FRBNY’s document production does not include any documents responsive to the Committee’s subpoena prior to September 2008, so the Committee is not currently able to learn when the FRBNY first became aware of potential problems at AIG. In addition, the FRBNY’s document production does not include any documents responsive to the Committee’s subpoena after May of 2009, so the Committee is not currently able to learn the full extent of the FRBNY’s efforts to conceal information about the counterparty payments from this Committee and the public over the last eight months.

Perhaps more significant is that SIGTARP has opened an investigation into the adequacy of the New York Fed’s disclosures. Per the Financial Times:

The New York Federal Reserve is being investigated by Neil Barofsky, the special inspector general overseeing the troubled assets relief programme, over its disclosure of documents relating to the bail-out of AIG and its counterparties…

Mr Barofsky, who is due to appear at the hearing alongside Mr Geithner, says in his testimony that he is pursuing parallel investigations into whether the New York Fed improperly withheld information from the SEC and whether it subsequently withheld documents from his office during an earlier audit of the payments.

It is also worth remembering that SIGTARP has the longest arm of any of the investigators. As the New York Times points out:

B]There are, in fact, several other panels charged with reviewing and monitoring the bailout.

Back to the Issa report. Many of the revelations are striking. One theme that emerges is how much the Fed took charge at AIG as far as protecting its (institutional) interests were concerned. It begs the question as to who is running AIG. Mind you, we’d love to see the Fed act more like a private equity investor, setting targets of various sorts and monitoring progress against them. But here we see the Fed as extraordinarily intrusive on its own prerogatives. For instance:

On October 31, after AIG had failed to convince its counterparties to wind down the CDS contracts, the FRBNY ordered AIG to “stand down on all discussions with counterparties.”

Yves here. I’d like to hear from readers as to what legal authority the Fed would have to take such a step (I can see “requested” all day. But “ordered’?) The Fed is not a regulator of AIG, and its role as a secured lender does not give it the authority to direct AIG to honor material agreements.

It gets better. The Fed pressured AIG to claim that it would suffer “substantial competitive harm” if details of the CDOs involved in the bailout were revealed. That’s an obvious lie. So we have the Fed pushing a public company to make misrepresentations to the SEC.

We also learn that the Fed decides it’s going to review not just bailout-related SEC filings, but all of AIG’s SEC filings:

On November 17, 2008, AIG was about to make a required filing to disclose a new compensation package for its CFO, David Herzog. AIG shared its draft filing with Davis Polk. The filing disclosed that Herzog was about to rake in millions of dollars in bonuses.

Less than 40 minutes after receiving the draft filing from AIG, Davis Polk senior partner Marshall Huebner sent a frantic e-mail, entitled “READ ME,” to the FRBNY’s General Counsel, Thomas Baxter: “Sometimes I really do feel like evil gremlins are running this deal somehow. Very bad timing to have this (filing) come out just before the Secretary (Henry Paulson) and the Chairman (Ben Bernanke) go before Waxman …” Huebner asked Baxter, “Is there any chance – and maybe it is just too late – to get the Herzog comp package unagreed to? … We could help get the package changed/fixed before it is disclosed.” This issue, Huebner said, needed to go “right to Ed right now.”
Apparently, the FRBNY’s coercion succeeded in getting Herzog’s compensation package “unagreed to,” for AIG never made the filing.

Yves here. The report also does a solid job on the parts you’d expect, with some fresh details on the failure to negotiate the AIG credit default swaps, Geithner’s lame efforts to deny that the recuse of AIG was anything other than a backdoor bailout, and a detailed discussion of the major aspects of the cover-up.

The report, however, is not able to say how involved Geithner was in this operation. But given that the NY Fed has clearly refused to comply fully with the subpoena, it isn’t hard to imagine that particularly incriminating documents might have been withheld.

[Demeter]

69. The Press Angle of the Fed’s Backdoor-Bailout Cover-up

http://www.cjr.org/the_audit/the_geithner_feds_coverup_of_t.php

Geithner’s New York Fed responded to a FOIA by withholding more information

By Ryan Chittum

Whatever Tim Geithner’s New York Fed was trying to hide in the AIG backdoor bailout was so volatile it was deemed worthy of national-security-like classification, and the Fed reacted to media FOIA requests for information by withholding more information.

Reuters, gets the scoop on emails that detail the discussion between the Fed, AIG, and the SEC:

The SEC, according to an email sent by a New York Fed lawyer on January 13, 2009, agreed to limit the number of SEC employees who would review the document to just two and keep the document locked in a safe while the SEC considered AIG’s confidentiality request.

The SEC had also agreed that if it determined the document should not be made public, it would be stored “in a special area where national security related files are kept,” the lawyer wrote.

Hello! They really didn’t want that information out there. Which, of course, means we really need that information out there.

But what particularly has The Audit’s interest is the media angle. Reporter Matthew Goldstein drops some interesting information in the last paragraph of his story on that:

The emails also discuss that BusinessWeek magazine had submitted a Freedom of Information Act request for the document and the confidential treatment request was a way of dealing with that and other possible requests by the media for the document.

I asked Goldstein for more information on this. It turns out Goldstein himself was the BusinessWeek reporter who filed the FOIA. He passed along some emails showing the Fed reacting to the FOIA request.

They contain a revealing look at your government covering up public information—and in reaction to a request under the law that gives the public access to its information! Stunning.

In one email, the Federal Reserve’s James P. Bergin, an assistant vice president, is caught explaining the extralegal rationale for hiding information about the backdoor bailout (emphasis mine):

Well, I think that Alex (Latorre of the New York Fed) had anticipated the desire at one point to have the whole schedule be confidential. It’s less of a legally motivated worry than a worry that including the column headings could further incite FOIA requests or litigation—that if people know the counterparty names and amounts are indeed on this schedule, they will be all the more likely to want to request it.

This apparently was in reaction to Goldstein’s FOIA request, which was denied. To reiterate, the Geithner New York Fed reacted to a FOIA not by releasing the information, but by making more information secret—in order to prevent other meddlesome reporters (or lawyers) from filing FOIAs!

“Clearly they were concerned about other news organizations doing what we had done at BusinessWeek,” Goldstein tells me.

Which is what reporters should be doing: Digging into the securities filings, sniffing out something amiss, and pressing the government for answers. Goldstein says he and a colleague noticed in December 2008 that an AIG SEC filing mentioned a “Schedule A,” but didn’t include actually include it in the filing. Think this stuff is easy? Why don’t you wade through the 8-K yourself and see if you would have noticed it, much less gone through the trouble of filing a probably fruitless FOIA.

Because of that we now have an utterly revealing look at how the Federal Reserve thinks about transparency. This is something to keep in mind as people like Chris Dodd and the Obama administration try to beef up the Fed’s powers. The bank has always been one of the most unaccountable and undemocratic parts of the government—and one of the most powerful. Why should it have even more power when it acts like this?

The messed-up lesson from this behind-the-scenes look at government secrecy: Reporters, now you know that FOIA you request may do more harm than good. This is not okay.

As if this backdoor bailout and cover-up didn’t already stink to high heaven.


THINK ANYBODY HAS DROPPED A CLUE TO OUR FEARLESS LEADER? GEITHNER? BERNANKE? BUELLER?

[Demeter]

70. Dustbin of History Looking Increasingly Attractive to the Obama Administration

REGARDING THE "DEFICIT REDUCTION" BUDGET FREEZE

http://angrybear.blogspot.com/2010/01/dustbin-of-history-looking-increasingly_25.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+blogspot%2FHzoh+%28Angry+Bear%29

...So the whole charade is seen as a method to soften the public up for Medicare and Social Security cuts. For sure, health care spending including Medicare can't grow as projected simply as a matter of Stein's Law. But a system of reasonably universal, reasonably affordable health care is not obviously going to involve lower Federal spending on health care entitlements. On the Social Security front, Yves Smith recently groaned over a report (via Jesse's Café Américain) that the Obama administration was seeking to promote conversion of retirement accounts to annuities. The problem with such a proposal, though, is more that private annuities tend to suck (for insurance market failure type reasons) than that senior citizens have too much secure, inflation-protected retirement income. A logical, and maybe even efficient, solution that happens to be off-limits in most of polite society would be to add resources to Social Security to increase benefits. You may see these programs less charitably — you may also have elderly relatives who would be in less dire financial straits without them than I do. The bottom line is that entitlement spending cuts shouldn't be ends in themselves to anyone left-of-center with half a brain.

In any event, I have had enough. Fire Larry Summers. Fire Tim Geithner. Give Peter Orszag time to spend with his children. End the one-sided pseudo-post-partisan Kumbaya bullshit. Do it now.

[Demeter]

73. Who Knows? If Bill Murray's Character could grow, Maybe Obama's Can, Too

but I'm going to sleep on it. G'night everyone!

[Demeter]

76. Goldman, Deutsche, and the Destructive Use of Synthetic CDOs Come Into Focus

http://www.nakedcapitalism.com/2009/12/goldman-deutsche-and-the-destructive-use-of-synthetic-cdos-comes-into-focus.html


A HIGHLY TECHNICAL DISCUSSION OF SYNTHETIC CDOS AND HOW THEY SCREWED THE HOUSING MORTGAGE MARKET==CAME OUT AT CHRISTMAS, AND HASN'T MADE MUCH OF A SPLASH SINCE...

[Demeter]

77. “Jane Hamsher, Grover Norquist Call for Rahm Emanuel’s Resignation”

http://www.nakedcapitalism.com/2009/12/jane-hamsher-grover-norquist-call-for-rahm-emanuel%E2%80%99s-resignation.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

SO MANY CANDIDATES FOR PINK SLIPS, SO LITTLE URGENCY TO CLEAN HOUSE...ANTOHER XMAS PRESENT FOUND A MONTH LATER!



December 23, 2009

Attorney General of the United States of America
U.S. Department of Justice
950 Pennsylvania Avenue, NW
Washington, DC 20530-0001

Dear Attorney General Holder:

We write to demand an immediate investigation into the activities of White House Chief of Staff Rahm Emanuel. We believe there is an abundant public record which establishes that the actions of the White House have blocked any investigation into his activities while on the board of Freddie Mac from 2000-2001, and facilitated the cover up of potential malfeasance until the 10-year statute of limitations has run out.

The purpose of this letter is to connect the dots to establish both the conduct of Mr. Emanuel and those working with him to thwart inquiry, and to support your acting speedily so that the statute of limitations does not run out before the Justice Department is able to empanel a grand jury.

The New York Times reports that the administration is negotiating to double the commitments to Fannie and Freddie for a total of $800 billion by December 31, in order to avoid the congressional approval that would be needed after that date. But there currently is no Inspector General exercising independent oversight of these entities. Acting Inspector General Ed Kelly was stripped of his authority earlier this year by the Justice Department, relying on a loophole in a bill Mr. Emanuel cosponsored and pushed through Congress shortly before he left for the White House. This effectively ended Mr. Kelly’s investigation into what happened at Fannie and Freddie.

Since that time, despite multiple warnings by Congress that having no independent Inspector General for a federal agency that oversees $6 trillion in mortgages is a serious oversight, the White House has not appointed one.

We recognize that these are extremely serious accusations, but the stonewalling by Mr. Emanuel and the White House has left us with no other redress. A 2003 report by Freddie Mac’s regulator indicated that Freddie Mac executives had informed the board of their intention to misstate the earnings to insure their own bonuses during the time Mr. Emanuel was a director. But the White House refused to comply with a Freedom of Information Act request from the Chicago Tribune for those board minutes on the grounds that Freddie Mac was a “commercial” entity, even though it was wholly owned by the government at the time the request was made.

If the Treasury approves the $800 billion commitment to Fannie and Freddie by the end of the year, it will mean that under the influence of Rahm Emanuel, the White House is moving a trillion-dollar slush fund into corruption-riddled companies with no oversight in place. This will allow Fannie and Freddie to continue to purchase more toxic assets from banks, acting as a back-door increase of the TARP without congressional approval.

Before the White House commits any more money to Fannie and Freddie, we call on the Public Integrity Section in the Justice Department to begin an investigation into the cause of Fannie and Freddie’s conservatorship, into Rahm Emanuel’s activities on the board of Freddie Mac (including any violations of his fiduciary duties to shareholders), into the decision-making behind the continued vacancy of Fannie and Freddie’s Inspector General post, and into potential public corruption by Rahm Emanuel in connection with his time in Congress, in the White House, and on the board of Freddie Mac.

We also call for the immediate appointment of an Inspector General with a complete remit to go after this information.

We both come from differing political ideologies. One of us is the conservative head of a transparency foundation, and the other is the publisher of a liberal political blog. But we make common cause today out of grave concern for the future of our country in the wake of corruption-riddled bailouts. These bailouts continue to rob Main Street to benefit Wall Street, and, because of that, we together demand the resignation of Mr. Emanuel, a man who has steadfastly worked to obstruct both oversight and inquiry into the matter. Rahm Emanuel’s conflicts of interest render him far too compromised to serve as gatekeeper to the President of the United States.

We will lay out the details further below, and are available at your earliest convenience to meet with you directly.

Sincerely,

PETITION TO INVESTIGATE RAHM:

http://action.firedoglake.com/page/s/investigaterahm


Background information:

Rahm Emanuel was appointed to the board of Freddie Mac in February of 2000 by Bill Clinton, after serving as White House political director where he was a vocal defender of Mr. Clinton during the Monica Lewinski matter. He served there until leaving to run for Congress in 2001, which qualified him for $380,000 in stock and options and a $20,000 annual fee.

According to the Chicago Tribune, during his tenure the board was notified by executives of their plans to misstate the earnings of Freddie Mac: “On Emanuel’s watch, the board was told by executives of a plan to use accounting tricks to mislead shareholders about outsize profits the government-chartered firm was then reaping from risky investments. The goal was to push earnings onto the books in future years, ensuring that Freddie Mac would appear profitable on paper for years to come and helping maximize annual bonuses for company brass.” (3/5/2009)

The Tribune further reported that “during his brief time on the board, the company hatched a plan to enhance its political muscle. That scheme, also reviewed by the board, led to a record $3.8 million fine from the Federal Election Commission for illegally using corporate resources to host fundraisers for politicians. Emanuel was the beneficiary of one of those parties after he left the board and ran in 2002 for a seat in Congress from the North Side of Chicago.”

In December 2003, a report (PDF) was written by Armando Falcon Jr., head of the entity charged with oversight of Freddie Mac, the Office of Federal Housing Enterprise Oversight (OFHEO). The report asserts that company executives “demanded whatever level of earnings management was necessary to achieve steady rapid growth in Enterprise profits.” It also “provided evidence that non-executive members of the Board were aware, and supportive of, management in this regard, including the use of derivatives to improperly manage the earnings of Freddie Mac,” citing notes from a June 2, 2000 meeting of the Board of Directors (p. 24).

The OFHEO report concluded that board had “failed in its duty to follow up on matters brought to its attention.” The SEC filed a complaint (PDF) saying that Freddie Mac had “misreported profits by billions of dollars in order to deceive investors between the years of 2000 and 2002,” per ABC News.

In Congress, Rahm Emanuel worked to pass a bailout of Fannie and Freddie, cosponsoring the Housing and Economic Recovery Act of 2008, which also dissolved OFHEO. It moved their regulatory authority to the Federal Housing Finance Agency (FHFA), which took Fannie and Freddie under conservatorship in September 2008. The same act abolished the Federal Housing Finance Board (FHFB) and replaced it with the FHFA.

After Mr. Emanuel was named Chief of Staff, the White House denied a Chicago Tribune Freedom of Information Act request for information on his Freddie Mac activities: “The Obama administration rejected a Tribune request under the Freedom of Information Act to review Freddie Mac board minutes and correspondence during Emanuel’s time as a director. The documents, obtained by Falcon for his investigation, were “commercial information” exempt from disclosure, according to a lawyer for the Federal Housing Finance Agency.” However, at the time of the request Freddie Mac was no longer a “commercial” enterprise, having been taken over by the government in September of 2008.

According to ABC News, the Justice Department is in possession of these records, yet no indictments have been forthcoming: “Freddie Mac records have been subpoenaed by the Justice Department as part of its investigation of the suspect accounting procedures” they reported in November 2008.

When the OFHEO and the FHFB were abolished, FHFB employees were automatically transferred to the FHFA and retained their “same status, tenure, grade, and pay.” Ed Kelly, who had been the Inspector General for the FHFB, was looking into the wrongdoing of Fannie and Freddie at the FHFB when the Justice Department, using the authority of the 2008 law Emanuel cosponsored, stripped him of Inspector General authority and removed him from oversight of Fannie and Freddie.

The Huffington Post obtained copies of an internal memo (PDF) on the ruling by the Justice Department’s Office of Legal Counsel. They report that “the ruling came in response to a request from the Federal Housing Finance Agency itself — which means that a federal agency essentially succeeded in getting rid of its own inspector general.”

The memo states that “Congress did not intend for the FHFA to have an Acting or interim IG pending the confirmation of a PAS IG.” But according to the Huffington Post, “the chairmen of the House and Senate banking committees, Rep. Barney Frank (D-Mass.) and Sen. Chris Dodd (D-Conn.), both told HuffPost that Congress had no intention whatsoever of revoking Kelley’s authority to operate as an IG.”

According to Neil Barofsky, the Special Inspector General overseeing the TARP bank bailout: “It’s a serious gap in oversight,” Barofsky told HuffPost of Ed Kelley’s loss. “It does impact what we do. Ed was a member of our TARP IG council and a partner in our investigative work.” Barofsky said he still investigates areas of FHFA, but his mandate only covers “a sliver of what they do.”

The Huffington Post further reports that it is the White House’s failure to appoint an Inspector General that has stalled the process: “Federal Housing Finance Agency officials insist[] that they notified Congress about the problem and pressed the Obama administration “multiple times” to appoint someone to the position tasked with rooting out wrongdoing at Fannie Mae, Freddie Mac and the Federal Home Loan Bank,” they report.

I addition to his role as White House Chief of Staff, Mr. Emanuel is heavily involved in decisions made by the Treasury Department . The Wall Street Journal reported in May that “Rahm wants it” has become an unofficial mantra in the Department. It is therefore of grave concern that the New York Times reports the Treasury is negotiating to increase their commitment to Fannie and Freddie, in the absence of independent oversight: “Fannie Mae and Freddie Mac, which buy and resell mortgages, have used $112 billion — including $15 billion for Fannie in November — of a total $400 billion pledge from the Treasury. Now, according to people close to the talks, officials are discussing the possibility of increasing that commitment, possibly to $400 billion for each company, by year-end, after which the Treasury would need Congressional approval to extend it. Company and government officials declined to comment.”


SO RAHM IS OBAMA'S CHENEY. I KNEW I DIDN'T LIKE HIM, I JUST DIDN'T KNOW HOW MUCH OR WHY.

[Demeter]

78. The nationalization of America’s mortgage problem

http://www.nakedcapitalism.com/2009/12/the-nationalization-of-americas-mortgage-problem.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

ANOTHER LATE XMAS PRESENT: HISTORY AND PRESENT CIRCUMSTANCES OF FANNIE AND FREDDIE.

[Demeter]

82. Eurozone unemployment rate hits 10%

The only difference between US and EUROPE is their healthcare, unemployment, and general safety social network...but that's a mighty big difference. They will have a new generation ready in the wings, while we will look like Haiti, when this depression comes to an end....

http://news.bbc.co.uk/2/hi/business/8486768.stm

Unemployment in the 16 countries that use the euro hit 10% in December for the first time since the single currency was introduced in 1999.

It had been reported that the rate hit 10% in November, but this has subsequently been revised down to 9.9%.

Some 15.8 million people are now out of work in the eurozone, according to Eurostat.

Across all 27 countries that make up the EU, there are now 23 million people unemployed.

Youth unemployment

Latvia has the highest jobless rate in the EU at 22.8%.

Spain continues to have the highest rate in the eurozone - rising to 19.5% in December, up from 19.4% in November.


EU UNEMPLOYMENT RATES
Highest:
Latvia - 22.8%
Spain - 19.5%
Estonia - 15.2%
Lowest:
Netherlands - 4.0%
Austria - 5.4%
Cyprus - 6.1%
Source: Eurostat

The Netherlands has the lowest jobless rate at 4%, followed by Austria at 5.4%.

Some 21% of under-25s in the eurozone were unemployed in December 2009, with Spain suffering the highest rate of all, at 44.5%.

According to Eurostat, a total of 87,000 jobs were lost across the eurozone during December. That was the lowest increase since May 2008.

Responding to the figures, Howard Archer from IHS Global Insight says eurozone unemployment will increase further in the coming year.

"Although the rise in eurozone unemployment has slowed in recent months, it still seems poised to trend higher during much, if not all, of 2010," he said.

Separate figures released by the country's National Statistics Institute show that in the final three months of 2009, 4.33 million people were unemployed in Spain.

[Demeter]

83. Watchdog: Bailouts created more risk in system

http://news.yahoo.com/s/ap/20100131/ap_on_bi_ge/us_bailout_watchdog

The government's response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.

The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

Since Congress passed $700 billion financial bailout, the remaining institutions considered "too big to fail" have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.

Barofsky also said his office is investigating 77 cases of possible criminal and civil fraud, including crimes of tax evasion, insider trading, mortgage lending and payment collection, false statements and public corruption.

One case concerns apparent self-dealing by one of the private fund managers Treasury picked to buy bad assets from banks at discounted prices. A portfolio manager at the firm apparently sold a bond out of a private fund, then repurchased it at a higher price for a government-backed fund. A rating agency had just downgraded the bond, so it likely was worth less, not more, when the government fund bought it. The company is not being named pending the outcome of Barofsky's investigation.

Barofsky renewed a call for Treasury to enact clearer walls so that such apparent conflicts are less likely.

Treasury said it welcomed Barofsky's oversight but resisted the call to erect new barriers against conflicts of interest. The new rules "would be detrimental to the program," Treasury spokeswoman Meg Reilly said in a statement. The existing compliance rules "are a rigorous and effective method of protecting taxpayers," she said.

Much of Barofsky's report focused on the government's growing role in the housing market, which he said has increased the risk of another housing bubble.

Over the past year, the federal government has spent hundreds of billions propping up the housing market. About 90 percent of home loans are backed by government controlled entities, mainly Fannie Mae, Freddie Mac and the Federal Housing Administration.

The Federal Reserve is spending $1.25 trillion to hold down mortgage rates, and millions of homeowners have refinanced at lower rates.

"The government has stepped in where the private players have gone away," Barofsky said in an interview. "If we take government resources and replace that market without addressing the serious (underlying) concerns, there really is a risk of" artificially pushing up home prices in the coming years.

The report warned that these supports mean the government "has done more than simply support the mortgage market, in many ways it has become the mortgage market, with the taxpayer shouldering the risk that had once been borne by the private investor."

Barofsky's report echoed concerns raised by housing experts in recent months, as home sales and prices rebounded. They warn that the primary reason for the turnaround last year has been billions of dollars in federal spending to lower mortgage rates and prop up demand.

Once that spigot of cash is turned off, they caution, the market will be vulnerable to a dramatic turn for the worse. Daniel Alpert, managing partner of investment bank Westwood Capital, wrote in a report that national home prices are bound to fall 8 to 10 percent below the lows of last spring.

"The lion's share of the remaining decline will occur in markets that saw sizable bubbles but have not yet retrenched," he wrote.

Officials from the Obama administration counter that massive federal intervention has helped the housing market stabilize and prevented more dire consequences.

Barofsky's report also disclosed that, while the Obama administration has pledged to spend $75 billion to prevent foreclosures, only a tiny fraction — just over $15 million — has been spent so far. Under the Making Home Affordable program, only about 66,500 borrowers, or 7 percent of those who signed up, had completed the process as of December.

He said the key to preventing future crises is to reform Fannie Mae and Freddie Mac, create and improve loan underwriting and supervision of banks. He stopped short of endorsing specific proposals for overhauling financial regulation, but said many of the proposals would go far to improving the system.

[Demeter]

84. You Have GOT to See this Dilbert!

http://dilbert.com/dyn_file/str_strip/80277/gif/strip.print/

[Demeter]

85. That's a Wrap Folks.

I finally watched 'Martian Child', the John Cusack film, and I am undone.

Happy February, and watch out for them groundhogs.

[Dr.Phool]

86. In honor of Bill Murray and the groundhog, I'm gonna learn to play piano.

So far, I've found middle C. Tonight I'll conquer Ode to Joy!.

In six months, I'll be headlining in Vegas.

[Demeter]

88. That's the Way!

It will help time to pass as we wait for the depression to end....

[DemReadingDU]

89. Oh, I thought we are in recovery

:sarcasm:



P.S. Thanks for the weekend efforts!